Brazilian Real Falls for Second Day on Dimmed GDP Growth OutlookPaula Sambo and Josue Leonel
Brazil’s real fell for a second straight day as a dimmed economic growth outlook made the South American nation’s assets less attractive to international investors.
The real slipped 0.1 percent to 2.5836 per dollar at the close of trading in Sao Paulo. Swap rates, a gauge of expectations for changes in borrowing costs, rose 0.01 percentage point to 12.69 percent on the contract maturing in January 2016.
Economists lowered their forecast for gross domestic product growth in 2015 to 0.13 percent from 0.38 percent, according to the median of about 100 estimates in a weekly central bank survey published Monday. Evidence of a stalled economy heightens the challenges for Finance Minister Joaquim Levy, who has pledged to impose fiscal discipline.
“Negative expectations for the Brazilian economy are deepening,” Paulo Gala, a strategist at Fator SA Corretora de Valores in Sao Paulo, said by telephone.
The real posted its third consecutive weekly rally on Friday as the central bank signaled further increases in borrowing costs while euro-area policy makers announced the expansion of stimulus measures keeping rates low.
Borrowing euros at the end of last year and selling them to buy reais in a so-called carry trade returned 11 percent as of Monday, the best performance in emerging markets. The euro fell below 3 reais last week for the first time since September.
“We should see some volatility as the downside correction on the real is seen as a good entry opportunity to strengthen long real positions on the carry trade portfolio,” 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. On the following day, the European Central Bank pledged to buy government bonds as part of a stimulus program worth 1.1 trillion euros ($1.2 trillion).
Levy is trying to regain investor confidence and boost the economy through spending cuts and tax increases, announcing last week higher levies on fuel, imports, credit and cosmetics.
The fiscal 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, on Friday.
To support the real and limit import price increases, the central bank sold the equivalent of $98.8 million of currency swaps Monday and rolled over contracts worth $492.4 million.