Brazil Real Drops Most Among Major Currencies on Growth Outlook

Brazil’s real fell the most among major currencies as economists surveyed by the central bank lowered their 2014 growth outlook for a sixth straight week.

The real declined 0.5 percent to 2.2249 per U.S. dollar at the close of trade in Sao Paulo, the biggest drop among 16 major currencies tracked by Bloomberg. Swap rates on contracts maturing in January 2017 fell two basis points, or 0.02 percentage point, to 11.41 percent.

Economists reduced their growth forecast for this year to 1.07 percent from 1.10 percent a week earlier, according to the median of about 100 estimates in a central bank survey published today. Brazil’s slower growth and accelerating inflation are credit-negative, Moody’s Investors Service said in a report.

“Expectations for the second half of the year aren’t good, and the currency reflects that bad sentiment,” Reginaldo Galhardo, foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview.

Consumer price increases accelerated to 6.51 percent in the 12 months through June, according to the median forecast of economists surveyed by Bloomberg before tomorrow’s report from the national statistics agency. That would be faster than the 6.5 percent upper limit of the official target range.

The winner of the October presidential election will face weak economic growth, persistently high inflation and “a general sense of pessimism regarding near-term economic prospects,” Moody’s senior credit officer Mauro Leos wrote in a report published today.

Moody’s Rating

Moody’s has maintained Brazil at Baa2, the second-lowest level of investment grade, since June 2011. Standard & Poor’s cut its rating one level lower to BBB- on March 24.

The central bank survey that was published today indicated that the median forecast of its five most-accurate economists was for the real to weaken to 2.25 per U.S. dollar at year-end, compared with 2.30 a week earlier. The median outlook of about 100 economists stayed at 2.40 percent.

To bolster the real and limit import price increases, Brazil sold $199 million of currency swaps today and rolled over contracts worth $346.8 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.

A slowing economy spurred policy makers to hold the target lending rate at 11 percent on May 28 after nine consecutive increases to curb inflation.

Production of vehicles in Brazil declined 33.3 percent in June from a year earlier to 215,934 units, Anfavea, the national vehicle manufacturers association, said today at a press conference in Sao Paulo.

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