Brazilian Real Falls Most in Emerging Markets on China Slowdown

Brazil’s real fell the most in emerging markets after manufacturing contracted in China, the South American nation’s top trading partner, even as the central bank intervened to try to stem the currency’s depreciation.

The real slid 1.6 percent to 2.2505 per U.S. dollar, the most on a closing basis since June 19. The central bank sold $993 million of foreign-exchange swap contracts today in the 17th day of auctions since May 31. Swap rates on contracts due in January climbed two basis points, or 0.02 percentage point, to 8.76 percent.

“Even though the Chinese government has showed commitment to expanding the economy, the concrete data from the country aren’t showing that it’s happening,” Reginaldo Galhardo, currency manager at Treviso Corretora de Cambio, said in a phone interview from Sao Paulo.

Brazil’s currency has fallen 11 percent in the past three months as accelerating inflation helped spur street protests and hampered efforts to stimulate Latin America’s largest economy.

Brazil’s unemployment rate rose to 6 percent in June from 5.8 percent in the previous month, the national statistics agency reported today. The median forecast of 27 economists surveyed by Bloomberg was 5.8 percent.

The preliminary reading of 47.7 for China’s purchasing managers’ index released by HSBC Holdings Plc and Markit Economics missed the 48.2 median forecast of economists surveyed by Bloomberg. Readings below 50 indicate contraction.

Brazil’s Policy

Brazil’s policy makers raised the target lending rate by a half-percentage point on July 10 to 8.50 percent, the third increase this year. The central bank said in minutes of the meeting that it is appropriate to maintain the pace of rises in borrowing costs to curb inflation.

The government is cutting spending for the second time in two months to help meet its fiscal target as it forecasts slower growth this year in Latin America’s biggest economy.

Finance Minister Guido Mantega said July 22 that the government is reducing expenditures by 10 billion reais and lowering this year’s economic growth forecast to 3 percent from 3.5 percent. The government will meet its primary budget surplus target, which excludes interest payments, of 2.3 percent of gross domestic product this year without reducing investments, according to Mantega.

First-quarter GDP growth unexpectedly slowed to 0.55 percent from the previous three-month period, trailing analysts’ forecasts for a fifth straight quarter. GDP climbed 0.9 percent last year, the worst performance since the 2009 recession.

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