Brazil October Current Account Gap Wider Than Analysts Forecast

Brazil’s current account deficit in October was wider than economists forecast, as the gap continues to outpace inflows of foreign investment.

The deficit in the current account, the broadest measure of trade in goods and services, widened in October to $8.1 billion from $7.9 billion a month earlier, the central bank said in a report distributed today in Brasilia. The gap was the widest since April, when it was $8.3 billion. Foreign direct investment during the same period rose to $5 billion from $4.2 billion. Economists surveyed by Bloomberg forecast a deficit of $7.5 billion and FDI of $4.3 billion.

With foreign investment trailing the current account deficit, the real has come under increased pressure as re-elected President Dilma Rousseff faces the challenge of reviving an economy expected to grow at the slowest pace in five years without fueling inflation that is hovering just below the ceiling of the government-set target.

Swap rates on the contract due in January 2017, the most traded in Sao Paulo today, fell four basis points, or 0.04 percentage point, to 12.20 percent at 10:40 a.m. local time. The real weakened by 0.9 percent to 2.5373 per U.S. dollar and has dropped 6.9 percent this year.

Latin America’s largest economy is expected to post a current account deficit of $80 billion and FDI of $63 billion this year, the central bank said in September. That compares with an $81 billion deficit and investment of $64 billion in 2013. The current gap through October this year totaled $70.7 billion, while foreign investment amounted to $51.2 billion.

First Recession

Brazil’s economy contracted 0.6 percent in the second quarter, after a revised 0.2 drop in the first three months of 2014, which represents the country’s first recession since 2009. Analysts in the latest central bank survey forecast the economy will grow 0.2 percent this year. The national statistics agency will announce third-quarter gross domestic product on Nov. 28.

The central bank on Oct. 29 surprised most economists by boosting the benchmark interest rate 25 basis points to 11.25 percent. It was the first increase since April. Policy makers decided on the increase to reduce costs of fighting inflation pressures for the next year, the central bank said in the minutes to the meeting.

Annual inflation in mid-November decelerated to 6.42 percent from 6.62 percent a month earlier. Brazil’s central bank targets annual inflation of 4.5 target, plus or minus two percentage points.

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