Brazil’s Real Drops as Current-Account Gap Wider Than ForecastFilipe Pacheco
Brazil’s real fell for the first time in four days after the central bank reported a current-account deficit that was wider than forecast.
The real slid 0.2 percent to 2.5802 per dollar at the end of trade in Sao Paulo, paring its third straight weekly rally to 1.6 percent. Swap rates, a gauge of projections for changes in borrowing costs, decreased 0.05 percentage point to 12.34 percent on the contract maturing in January 2017 and were up 0.06 percentage point this week.
The deficit in the current account, the broadest measure of trade in goods and services, widened to $10.3 billion in December, compared with the median forecast of $9.7 billion from analysts surveyed by Bloomberg. Concern that Brazil’s fiscal deterioration and a weak economy will lead to a reduced credit rating helped push the real down 11 percent in 2014.
“The real exchange rate has not yet depreciated to the point where it will help the external accounts adjust towards a more moderate and sustainable level,” Alberto Ramos, the chief Latin America economist at Goldman Sachs Group Inc., said in an e-mailed research note. “The weak macro fundamentals and recent deterioration of the terms of trade place BRL fundamental fair-value at around 3.1-3.2 per dollar.”
Brazil’s policy makers signaled further increases in borrowing costs this week while the European Central Bank expanded its stimulus program, pushing the euro below 3 reais for the first time since September.
Borrowing euros at the end of last year and selling them to buy reais in a so-called carry trade returned 11.7 percent as of Friday, the best performance in emerging markets.
The real offers a “very advantageous return to investors” as Brazil moves opposite a global trend to lower rates, Ipek Ozkardeskaya, an analyst at Swissquote Bank SA in Gland, Switzerland, said in an e-mailed response to questions.
Brazil’s central bank raised the target lending rate on Jan. 21 by a half-percentage point to 12.25 percent. The next day, the ECB pledged to buy government bonds as part of a stimulus program worth 1.1 trillion euros ($1.2 trillion).
The Brazilian government reported Friday that annual inflation accelerated to a level faster than the upper limit of the official target. Consumer prices increased 6.69 percent in the 12 months through mid-January, compared with the preferred range of 2.5 percent to 6.5 percent.
To support the real and limit import price increases, Brazil sold the equivalent of $98.4 million of currency swaps and rolled over contracts worth $490.4 million Friday.
Finance Minister Joaquim Levy is trying to regain investor confidence and boost the economy through spending cuts and tax increases. The measures are having an impact on medium- and long-term inflation expectations, something that hasn’t been seen for a long time, central bank President Alexandre Tombini told reporters in Davos, Switzerland.