Brazil June Current Account Gap Narrower Than Analysts Forecast

Brazil’s June current account deficit was the narrowest since last September, as both exports and imports dropped from a year ago.

The deficit in the current account, the broadest measure of trade in goods and services, narrowed in June to $3.3 billion from $6.6 billion a month earlier, the central bank said in a report distributed today in Brasilia. Foreign direct investment during the same period fell to $3.9 billion from $6 billion. Economists surveyed by Bloomberg forecast a gap of $3.9 billion and investment of $3.8 billion.

Brazil’s current account deficit over 12 months has held steady near record levels while exceeding foreign direct investment inflows. Imports and exports have fallen this year amid a slowdown in global growth and as policy makers attempt to stimulate domestic consumption. The central bank said yesterday that changes in local supply and demand should take place, as family consumption slows while investment picks up.

The real weakened 0.3 percent to 2.2274 per U.S. dollar at 11:09 a.m. local time and has gained 6.1 percent since January, the most among emerging markets. Economists in a weekly central bank survey expect the currency to fall to 2.35 per dollar by year-end and 2.5 in December 2015, according to the survey published on July 21.

Largest Economy

Latin America’s largest economy will post a current account deficit of $80 billion and foreign direct investment of $63 billion this year, the central bank said last month. That compares with an $81 billion gap and investments of $64 billion in 2013.

Government officials including Finance Minister Guido Mantega this year have stepped up efforts to attract investments in areas including ports and highways. Brazil on July 17 received pledges of $8.6 billion in investments from China, less than a week after President Dilma Rousseff said in a televised interview that investment is the hallmark of her first term.

Still, banks such as Itau Unibanco Holding SA and Credit Suisse Group AG estimate Brazil’s economy shrank in the second quarter amid weak business sentiment. Brazil’s economy expanded 0.2 percent in the first quarter, half the pace posted in the last three months of 2013.

The central bank on July 16 held the benchmark Selic at 11 percent for the second straight meeting after lifting borrowing costs by 375 basis points in the year to April. In the minutes to their July 15-16 gathering, policy makers said their strategy does not “consider a reduction in the monetary policy tool” and added inflation still shows certain persistence.

Reserve Requirements

Policy makers today eased bank reserve requirements to free up 30 billion reais ($13.5 billion) in additional credit.

Annual inflation in mid-July accelerated to 6.51 percent even as a drop in airline fares prompted monthly price increases to slow to 0.17 percent from 0.47 percent. Prices will reach 6.6 percent by the third quarter, according to central bank estimates published on June 26.

The central bank on June 26 also cut its 2014 growth forecast to 1.6 percent. That’s down from 2.5 percent in 2013, and would represent the fourth straight year with growth below the Latin American average.

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