Brazil’s Real Drops to 12-Year Low as Analysts See Deeper SlumpFilipe Pacheco
The real declined to a 12-year low as a deeper projected contraction in Brazil’s economy and the government’s failure to meet fiscal targets added to speculation that the nation is facing a rating cut.
The currency tumbled 5 percent last week after Finance Minister Joaquim Levy asked lawmakers to cut a key budget goal as tax collection eroded. Analysts from Moody’s Investors Service, which visited central bank and Finance Ministry officials earlier this month, adopted a negative outlook on Brazil’s credit grade in September.
“Investors are seeking protection against all the problems we see in Brazil, so they buy dollars,” Jefferson Rugik, a currency trader at Correparti Corretora de Cambio in Curitiba, said in a telephone interview. “There is no expectation things will improve in the short term, and the slump in the currency shows that clearly. A rating cut would make things much worse.”
The real fell 0.3 percent to 3.3638 per dollar at the close of trading in Sao Paulo, the weakest level since March 2003. The local currency has tumbled 21 percent this year, the worst performance among 31 major tenders tracked by Bloomberg.
While investors and analysts don’t see an improvement in sentiment regarding the country’s economy before news on ratings, the currency should face considerable volatility, Rugik said.
One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was 19 percent, the highest among 31 major tenders.
Brazil has no plan to use its international foreign-exchange reserves, Planning Minister Nelson Barbosa told reporters after President Dilma Rousseff’s weekly cabinet meeting in Brasilia. They “give the Brazilian government more autonomy when conducting its economic policy, he said.
Brazil extended the maturity on 6,000 currency swap contracts Monday. Earlier this month, it lowered the total amount offered in a rollover from 7,100.
Swap rates, a gauge of projected changes in Brazil’s borrowing costs, climbed to a three-week high of 13.88 percent on the contract maturing in January 2017 as the central bank saw new inflation risks for next year.
‘‘Despite some undeniably positive results, recent developments show that there are new risks to the inflation outcome for 2016 that might affect longer-term horizons,’’ Economic Policy Director Luiz Awazu Pereira said Friday in prepared remarks for an event in Rio de Janeiro.
Trading indicates that the central bank will raise the target lending rate by a half-percentage point to 14.25 percent Wednesday and by another quarter-percentage point in September.
Analysts surveyed by the central bank lowered their 2015 outlook for gross domestic product to a contraction of 1.76 percent, according to the median of estimates published Monday. They reduced their outlook for the target lending rate to 14.25 percent at the end of 2015 from 14.5 percent, indicating concern that the economy is headed for its worst recession in a quarter-century.
They still expected inflation to accelerate, raising their outlook for this year to 9.23 percent, faster than the official target range of 2.5 percent to 6.5 percent.