Brazil’s Real Declines as Poll Shows Rousseff Would Win Runoff

Brazil’s real dropped for the first time in four days as a poll indicated that President Dilma Rousseff would win in an election runoff even as Latin America’s biggest economy stalls.

The real fell 0.3 percent to 2.2204 per dollar at 12:11 p.m. in Sao Paulo. Swap rates, a gauge of expectations for interest-rate moves, rose three basis points, or 0.03 percentage point, to 11.08 percent on the contract due in January 2017.

“There is always a negative reaction for the real when polls show Rousseff has a chance of being re-elected,” Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a phone interview.

The real pared its rally this year to 6.5 percent, remaining the biggest among 24 emerging-market currencies. It declined today as a July 18-21 poll from Ibope indicated that backing for Rousseff for the October election slipped to 38 percent from 39 percent last month, still higher than the 22 percent support for Senator Aecio Neves. The survey has a margin of error of plus or minus 2 percentage points.

If no candidate has more votes than all other opponents combined, the two front-runners go against each other in a second vote. In a runoff between Rousseff and Neves, she would have a lead of 8 percentage points, the poll indicated. Datafolha and Sensus surveys last week showed Rousseff’s advantage over Neves in a second round was within the margins of error, making the outcome too close to call.

Currency Swaps

To support the real and limit import price increases, Brazil sold $198.7 million of currency swaps today and rolled over contracts worth $346.4 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.

Policy makers held the target lending rate at 11 percent for a second straight meeting on July 16 after nine consecutive increases to curb accelerating inflation.

Economists lowered their forecast for inflation in Brazil in 2014 to 6.44 percent, according to the median of about 100 estimates in a central bank survey published July 21. They cut their growth estimate for an eighth consecutive week, forecasting a 0.97 percent expansion of gross domestic product following a 2.5 percent increase in 2013.

The central bank, which maintains an annual inflation target of 4.5 percent plus or minus 2 percentage points, is due to publish tomorrow minutes of last week’s policy decision.

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