Brazil’s real tumbled to a three-year low on speculation weaker-than-forecast economic growth may prompt the central bank to allow the currency to weaken further to support exporters.
Swap rates fell the most in eight weeks after a report showed the economy grew in the third quarter at half the pace economists forecast, prompting bets that policy makers will keep borrowing costs at a record low for an extended period. The currency’s drop last week spurred the central bank to intervene in the foreign-exchange market.
“Due to this data, we could see significant selling pressure on the real,” Bernd Berg, an emerging-markets strategist at Credit Suisse Group AG, said in a phone interview from Zurich. “It depends on the central bank. If it doesn’t intervene to support the currency, it can go easily to 2.15 per dollar in the next couple of days.”
The real slid 1.7 percent to 2.136 per dollar today in Sao Paulo, the biggest one-day decline since June 21. It touched 2.1368, the weakest intraday level since May 2009. Swap rates on the contract due in January 2014 decreased 10 basis points, or 0.1 percentage point, to 7.21 percent, an all-time low on a closing basis.
Gross domestic product grew 0.9 percent in the third quarter from a year ago, the national statistics agency said today, trailing the 1.9 percent median forecast of economists surveyed by Bloomberg.
“A negative surprise like this could push the government to see the currency as an instrument to stimulate the economy,” Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil SA in Sao Paulo, said in a phone interview.
The currency traded in a range of 2 to 2.1 per dollar from July 4 through Nov. 21 before falling two days later to what was then the three-year intraday low, prompting intervention. A decline in the currency hurts Brazilian companies whose expenses are mostly in dollars.
The real rallied on Nov. 23 as the central bank auctioned currency swaps for the first time since June, selling 32,500 contracts maturing in December valued at $1.6 billion. From August through October, the bank sold reverse currency swaps to keep the real weaker than 2 per dollar and make Brazil’s exporters more competitive.
Finance Minister Guido Mantega used the term “currency war” in 2010 to describe the use of monetary policy by industrialized countries to boost their exports.
The real lost 4.9 percent in November, the biggest decline among 25 emerging-market currencies tracked by Bloomberg. The currency declined 2.6 percent this week.
Barry Sternlicht, the chairman and chief executive officer of Starwood Capital Group LLC, said at a real estate conference in New York that he finds the Brazilian currency attractive and wants to “get my personal exposure out of the dollar.”
Policy makers left Brazil’s target lending rate at a record low 7.25 percent this week, snapping a streak of 10 reductions as they tried to stoke growth in an economy forecast to expand at the slowest pace in three years. In a statement accompanying their rate decision, they pledged to keep monetary conditions stable for a “prolonged period.”
President Dilma Rousseff’s government has cut taxes and boosted spending over the past 12 months to prop up an economy heading toward its worst two-year performance in a decade. While the efforts are keeping retail sales buoyant amid a global slowdown, companies are holding back on investment.
Consumer prices as measured by the IPCA index rose 5.45 percent in October from a year earlier. According to the latest central bank survey, inflation is projected to stay above the government’s 4.5 percent target through 2013.
“The worst part for the central bank is that, on top of this weak growth, inflation is not retreating as you would expect,” Caramaschi said.