Brazil’s real fell to a one-week low amid concern that President Dilma Rousseff’s economic team will struggle to revive growth during her second term.
The currency weakened 0.5 percent to 2.5078 per dollar at the close of trade in Sao Paulo, the biggest decline among major Latin American counterparts tracked by Bloomberg after Chile’s peso. Swap rates, a gauge of expectations for changes in borrowing costs, decreased eight basis points, or 0.08 percentage point, to 12.43 percent on the contract due in January 2017.
The real has lost 1.8 percent in the past week on speculation Rousseff will appoint a finance minister who will maintain policies that helped lead Brazil into a recession in the first half of the year. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was still the highest among 16 major currencies.
“Markets are trading on expectations about the future economic team,” Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro, said by telephone.
The real also dropped along with most emerging-market currencies as U.S. Republicans captured control of the Senate, buoying the dollar.
In Brazil, the newly re-elected Rousseff faces the challenge of ending the recession, slowing above-target inflation and stemming deficits threatening the country’s investment-grade status. Finance Minister Guido Mantega won’t be returning for the president’s second four-year term.
Standard & Poor’s lowered Brazil’s credit rating in March for the first time in more than a decade to the lowest level of investment grade, citing slower growth as well as deteriorating fiscal accounts.
In a sign of persistent economic weakness, the national statistics agency reported yesterday that Brazil’s industrial output unexpectedly dropped 0.2 percent in September from a month earlier. The median forecast of 38 economists surveyed by Bloomberg was for a 0.2 percent increase.
Brazil posted last week a record budget deficit of 69.4 billion reais for September, more than twice the median estimate in a Bloomberg survey of economists.
To support the currency, the central bank sold the equivalent of $197.4 million of foreign-exchange swaps today as part of an intervention begun last year and extended the maturity on contracts worth $439.5 million.