Brazil’s Real Drops to 8-Week Low as Goldman Calls for 10% Drop

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Brazil’s real fell to an eight-week low as Goldman Sachs Group Inc. reiterated that a weaker currency is needed to narrow trade deficits.

The investment bank called for the real to decline 10 percent after the deficit in the current account, the broadest measure of trade in goods and services, increased more than forecast in April to $6.9 billion. Concern that lawmakers will oppose efforts to preserve the nation’s credit rating by cutting government budget shortfalls contributed to the real’s drop.

“There has been a lot of concern regarding the approval and execution of fiscal measures,” Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio, said in a telephone interview from Sao Paulo. “Current-account numbers are still quite bad. It’s been hard to find good news out of Brazil lately.”

The currency depreciated 1.8 percent to 3.1535 per U.S. dollar at the close of trade in Sao Paulo, the weakest level since April 1. It extended its monthly decrease to 4.4 percent.

President Dilma Rousseff’s administration is trying to avoid a credit downgrade as analysts surveyed by the central bank forecast the biggest economic contraction since 1990 and inflation remains above the official target.

The Senate was preparing to vote on a reduction in unemployment benefits after Finance Minister Joaquim Levy said Monday that work remains after the government announced a 66.9 billion real spending freeze.

Tombini Stance

Central bank President Alexandre Tombini said Tuesday that policy makers will remain vigilant in their effort to slow inflation to the 4.5 percent target by the end of 2016. The board voted unanimously April 29 to lift the benchmark lending rate to 13.25 percent, the highest since 2009.

Swap rates, a gauge of expectations for Brazil’s borrowing costs, decreased 0.01 percentage point to 13.28 percent on the contract maturing in January 2017.

The real also fell as speculation mounted that the U.S. economy is strong enough for the Federal Reserve to increase interest rates, damping demand for higher-yielding assets from emerging markets.

Borrowing dollars at the end of last year and selling them to buy reais in a so-called carry trade lost 12 percent as of Tuesday, the worst performance among 16 major currencies tracked by Bloomberg.

Brazil is expected to determine this week how much of currency swaps it will roll over in June after it reduced the amount for this month and halted sales supporting the real in March. Brazil extended the maturity on contracts worth $396.5 million Tuesday.

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