Projected swings in Brazil’s real climbed for the first time in four days as Greece’s decision to impose capital controls sank demand for higher-yielding emerging-market assets.
The currency also faced risk from the festering bribery scandal involving Brazil’s state-controlled oil company and was vulnerable as a potential reduction in budget targets threatened the nation’s credit rating. Heightening local concern, analysts surveyed by the central bank once again raised their forecast for the benchmark lending rate as inflation accelerated. At the same time, they predicted a deeper contraction in gross domestic product.
“The collapse in market liquidity amid the rise in uncertainty fuels demand for safe havens,” Mark McCormick, a strategist at Credit Agricole, said by e-mail. “But local issues such as the outlook for growth, inflation and fiscal developments will remain the key forces for the real.” The firm was the most accurate forecaster of the real in the first quarter, data compiled by Bloomberg show.
One-month implied volatility on the real climbed 1 percentage point to 16.2 percent at the close of trade in Sao Paulo, data compiled by Bloomberg show. The currency rose 0.4 percent to 3.1177 per dollar after earlier declining as much as 0.7 percent. It was headed for a quarterly gain of 2.5 percent.
Analysts increased their year-end forecast for Brazil’s benchmark lending rate to 14.5 percent, according to the median of about 100 estimates in a central bank survey published Monday. Even with higher projected borrowing costs, they raised their 2015 inflation forecast to 9 percent, compared with the official target of 2.5 percent to 6.5 percent. The analysts predicted a 1.49 percent contraction in gross domestic product, deeper than the previous outlook for a 1.45 percent decline.
Brazil is the only member of the Group of 20 nations raising borrowing costs this year, contributing to a lag in growth. Inflation remains above the official target even after the central bank lifted its benchmark rate for a sixth straight time June 3, increasing it to 13.75 percent.
Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s borrowing costs, dropped 0.03 percentage point to 14.02 percent. They rose June 15 to the highest closing level since 2008.
Most developing-nation currencies fell as Greece closed banks and imposed capital controls after talks with international creditors over bailout aid collapsed late Friday.
Reflecting reduced concern over the real’s fluctuations, Brazil’s central bank extended the maturity on 5,200 foreign-exchange swap contracts Monday, down from 6,300 earlier this month and 8,100 in May.