Brazilian Real, Bonds, Stocks Fall as S&P Reduces Rating Outlook

Brazil’s real fell to a four-year low after Standard & Poor’s cut the government’s credit-rating outlook to negative amid an economic slump that’s threatening to drive up the country’s debt levels.

The currency depreciated 0.1 percent to 2.1319 per U.S. dollar after touching 2.1533, the weakest intraday level since May 2009. The benchmark Ibovespa stock index tumbled 2.4 percent to 51,618.63, the lowest level on a closing basis since October 2011. Prices on the nation’s dollar bonds due in 2023 fell, driving yields up 0.08 percentage point to 3.63 percent.

S&P lowered the outlook from stable yesterday on Brazil’s BBB rating, which is two levels above junk and in line with Mexico’s and Russia’s. The ratings company cited Brazil’s sluggish economic growth, weakening fiscal accounts and loss of credibility with investors.

“It has to do with policy inconsistency, the low-growth high-inflation tradeoff and the loss of credibility of the central bank,” Siobhan Morden, a fixed-income strategist at Jefferies Group LLC, said in a phone interview from New York.

S&P also cut the rating outlook for state-controlled companies Petroleo Brasileiro SA and Centrais Eletricas Brasileiras SA. Shares of Petrobras, as the oil producer is known, fell to a one-month low. Eletrobras tumbled the most since early May.

Yields on interest-rate futures contracts maturing in January 2015 increased one basis point, or 0.01 percentage point, to 9.23 percent after a report showed the annual inflation rate accelerated to 6.50 percent, matching the upper end of policy makers’ target range.

Intervention Outlook

The currency pared its drop on speculation the central bank would intervene in the foreign-exchange market. The real has traded in an intraday range of 1.94 to 2.15 per dollar this year as policy makers fluctuated between selling currency swaps to prevent it from falling too much and offering reverse currency swaps to rein in gains.

“There are expectations that the central bank could intervene with a currency swap auction,” Francisco Carvalho, currency director at BGC Liquidez in Sao Paulo, said in a telephone interview.

The central bank sold currency swap contracts worth $1.38 billion on June 5 after selling contracts worth $877 million on May 31 in its first intervention in the foreign-exchange market since March.

Brazil’s economy expanded 0.9 percent last year and is forecast to grow 2.77 percent in 2013, according to a central bank survey published June 3. Inflation has prompted policy makers to boost the target lending rate by 0.75 percentage point this year to 8 percent after they lowered it by 5.25 percentage points in cuts that began in August 2011.

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