Brazil’s Real Drops to Six-Month Low as Fed Raises Rate Forecast

Brazil’s real slid to a six-month low as the U.S. Federal Reserve raised its forecast for interest rates at the end of next year, eroding demand for emerging-market assets.

The real fell 1.1 percent to 2.3579 per dollar, the biggest drop among 24 developing-nation currencies tracked by Bloomberg after the South African rand. Swap rates, a gauge of expectations for changes in borrowing costs, climbed three basis points, or 0.03 percentage point, to 11.53 percent on the contract due in January 2016.

“The market is considering the tone more optimistic than anticipated, which could lead to a rise in rates earlier than initially thought,” Andre Perfeito, the chief economist at Gradual Investimentos, said by phone from Sao Paulo. “The market had its finger on the trigger to start selling.”

Most emerging-market currencies slid as Fed officials raised their median estimate for the target lending rate at the end of 2015 to 1.375 percent, compared with 1.125 percent in June. Policy makers also tapered monthly bond buying to $15 billion in their seventh consecutive $10 billion cut, staying on course to end a program that has supported developing-nation assets by October.

The Fed maintained a commitment to keep interest rates near zero for a “considerable time” after asset purchases are completed, saying the economy is expanding at a moderate pace and inflation is below its goal.

In Brazil, an Ibope poll published yesterday showed a runoff between President Dilma Rousseff and Marina Silva would be too close to call while backing for third-place candidate Aecio Neves increased.

Voter Poll

Rousseff would win 36 percent of voter support in the first round, with 30 percent for Silva and 19 percent for Neves, according to the Sept. 13-15 survey, published yesterday. That compares with 39 percent for Rousseff, 31 percent for Silva and 15 percent for Neves in a prior Ibope poll.

In the past three weeks, Rousseff has stepped up attacks against Silva, saying the former environment minister doesn’t have the experience to lead and would reduce investments in offshore oil and gas reserves. Silva says the incumbent’s policies contributed to a recession in the first half of this year and quicker inflation.

Brazilian policy makers said last week in minutes of their September meeting that inflation will start slowing in 2016 toward the middle of the 2.5 percent to 6.5 percent official target if they keep the benchmark lending rate at a two-year high. The economy will expand this year at the slowest pace since 2009, falling short of the Latin American average by almost half, according to analysts surveyed by Bloomberg.

To support the currency, the central bank sold $198.2 million of currency swaps and rolled over contracts worth $296.4 million today under a program that started last year as part of an intervention.

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