Brazil’s Real Extends Weekly Drop to Biggest Since August 2013

Brazil’s real extended its weekly slump to the biggest in a year after a poll showed increased support for President Dilma Rousseff as the nation faces a recession and above-target inflation.

The real retreated 1.1 percent to 2.3242 per U.S. dollar at 11:31 a.m. in Sao Paulo, extending its weekly drop to 3.5 percent, the most among 24 emerging-market currencies tracked by Bloomberg. The decline since Sept. 5 is the biggest since August 2013. The Ibovespa slumped 1.5 percent to 57,499.70, leading declines among the world’s major stock indexes. The gauge was down 5.2 percent for the week.

The currency pared its gain this year to 2.2 percent as an Ibope poll showed 43 percent support in a runoff for opposition candidate Marina Silva, compared with 42 percent for Rousseff. The difference is within the margin of error of plus or minus two percentage points. An Ibope survey published last week showed Silva had a lead of seven percentage points.

“Markets don’t like to see Rousseff gaining support,” Reginaldo Galhardo, foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview. “The plunge in the value of the currency and the Ibovespa is a direct reflection of that.”

To support the real and limit import price increases, Brazil sold $197.7 million of currency swaps today as part of an intervention.

Forming Policies

If she wins, Silva will end the program that bolstered the currency, Reuters reported, citing her senior economic adviser, Alexandre Rands. He didn’t rule out “small, temporary actions” to eliminate volatility.

Rousseff said this week in an interview with Estado de S. Paulo that Finance Minister Guido Mantega will leave her administration for personal reasons if she’s re-elected.

“The formation of economic teams and future government policies are also influencing markets,” Paulo Petrassi, a fixed-income money manager at Leme Investimentos, said by telephone from Florianopolis, Brazil.

Moody’s Investors Service cited a reduction in growth and fiscal challenges under Rousseff when it cut the outlook on Brazil’s credit rating to negative from stable on Sept. 9.

Brazil fell into recession in the first half of the year, a report showed Aug. 29. Gross domestic product contracted 0.6 percent in the second quarter following a revised decline of 0.2 percent in the first three months of 2014, according to the national statistics institute. It said a week later that consumer prices rose 6.51 percent in August from a year earlier, faster than the 2.5 percent to 6.5 percent target.

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