Brazilian Real Declines to Lowest Level in Four Years

Brazil’s real fell to a four-year low, adding to concern that a weakening currency will further fuel inflation.

The currency depreciated 0.8 percent to 2.3060 per U.S. dollar, the weakest closing level since March 2009.

The real has tumbled 13 percent in the past three months, the most among emerging-market dollar counterparts, boosting the price of imports and threatening to further fuel inflation, which helped spawn street protests in June. Economists raised their 12-month forecast for increases in consumer prices to 5.93 percent from 5.83 percent, according to the median of about 100 estimates in a weekly central bank survey published today.

“The market sees the current relief in inflation as temporary,” Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil in Sao Paulo, said in a telephone interview.

Consumer prices as measured by the IPCA index climbed 6.24 percent in July from a year earlier after a June increase of 6.70 percent, according to the median forecast of economists surveyed by Bloomberg before a report Aug. 7 from the national statistics agency.

Swap rates on contracts maturing in January 2015 dropped three basis points, or 0.03 percentage point, to 9.69 percent after rising 10 basis points earlier today. They climbed 32 basis points last week, the most since the period ended June 21.

“The market is taking advantage of the recent increases in swap rates to make profits in a technical adjustment,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil in Sao Paulo, said in a phone interview.

Inflation Outlook

Brazil’s swap rates rose earlier today after the central bank reported that economists raised their 12-month inflation outlook, prompting speculation that the policy makers will step up increases in borrowing costs.

The central bank raised the target lending rate by a half-percentage point July 10 to 8.50 percent, the third consecutive advance this year.

The central bank sold $1.7 billion of foreign-exchange swap contracts on Aug. 2 to support the currency in the 21st day of auctions since May 31. The real’s three-month historical volatility climbed to 13.7 percent today, the highest among major Latin American currencies.

(Corrects Luciano Rostagno’s title in seventh paragraph of story that originally ran Aug. 5.)
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