Brazil’s Real Declines Most in Emerging Markets on Voter Poll

Brazil’s real fell the most among emerging-market currencies as poll results less than a week before the presidential runoff damped speculation that a new government will revive the nation’s economy.

The real dropped 0.8 percent to 2.4833 per U.S. dollar at the close of trading in Sao Paulo after losing 1.4 percent earlier today. The Ibovespa tumbled 3.4 percent to 52,432.43, the biggest drop among 93 stock indexes tracked by Bloomberg.

The currency pared its decline as analysts questioned results of a Datafolha poll indicating increased support for President Dilma Rousseff over opposition candidate Aecio Neves. The survey published yesterday is accurate, Marcel Guerreiro, Datafolha project coordinator, said in an interview.

“Markets get in a bad mood when Rousseff gains support,” Flavio Serrano, a senior economist at Banco Espirito Santo de Investimento in Sao Paulo, said in a telephone interview. “Polls are dictating the moves.”

One-month implied volatility on options for the real, reflecting projected shifts in the currency as the Oct. 26 runoff approaches, surged to a three-year high.

The Datafolha poll of 4,389 people that was conducted yesterday and published after markets closed showed Rousseff would have 46 percent support in the election’s second round and Neves 43 percent, with a margin of error of plus or minus two percentage points. In the Datafolha survey published Oct. 15, the president had 43 percent backing compared with 45 percent for the opposition candidate.

Candidate Clashes

The two hopefuls have clashed over the economy, inflation and corruption as polls conducted by Ibope, MDA and Vox Populi also show them statistically tied. While Neves pledges to slow inflation to boost growth, the incumbent says her opponent’s policies threaten record low unemployment rates and social welfare spending.

Swap rates, a gauge of expectations for changes in local borrowing costs, increased two basis points, or 0.02 percentage point, to 12.16 percent on the contract due in January 2017.

The central bank raised the target lending rate by 3.75 percentage points in the year through April to a two-year high of 11 percent in an effort to curb inflation before holding borrowing costs steady for the past three meetings.

The national statistics agency reported today that the annual inflation rate remained at 6.62 percent in the 12 months through mid-October, faster than than the 6.5 percent upper end of the official preferred range.

To support the currency, Brazil sold $196.7 million of foreign-exchange swaps as part of an intervention program and rolled over contracts worth $393 million.

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