Brazil’s real fell to a nine-year low as investors awaited President Dilma Rousseff’s appointment of a new finance minister and escalating tension in Ukraine sank demand for higher-yielding assets.
The real declined 0.8 percent to 2.5888 per dollar at the close of trade in Sao Paulo, the weakest level since April 2005. Swap rates, a gauge of expectations for changes in borrowing costs, climbed 0.10 percentage point to 12.87 percent on the contract maturing in January 2017.
The replacement for the departing Finance Minister Guido Mantega will face the challenge of reviving growth, slowing inflation and stemming deficits that are threatening the country’s investment-grade status. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, remained the highest among major currencies.
“There are too many uncertainties, and the new economic team will have the huge challenge of restoring growth,” Reginaldo Galhardo, foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview. “The slump in the real reflects those concerns.”
The currency extended losses after Agencia Estado reported that former Deputy Finance Minister Nelson Barbosa said in an interview that he wasn’t invited to take any position in Rousseff’s administration. Three people familiar with discussions had described former central bank chief Henrique Meirelles and Barbosa as the front-runners for the job as finance minister.
The real and Brazilian stocks joined a slide in emerging markets as oil tumbled on signs OPEC won’t cut output and the ruble weakened as the European Union and the U.S. weighed further sanctions against Russia.
Brazil’s central bank, acting to curb above-target inflation, unexpectedly raised the benchmark lending rate by a quarter-percentage point to 11.25 percent three days after Rousseff won re-election Oct. 26. Standard & Poor’s reduced the nation’s credit rating in March to the lowest level of investment grade, citing slower growth as well as deteriorating fiscal accounts.
To support the real, Brazil sold the equivalent of $197.2 million of foreign-exchange swaps today as part of an intervention begun last year and rolled over contracts worth $438.4 million.