Brazil Analysts Forecast Stronger Real for Second Straight Week

Brazil economists forecast a stronger currency in 2016 and 2017 for the second straight week as the government seeks to shore up fiscal accounts and rebuild confidence.

The country’s real will reach 3.55 per U.S. dollar at the end of 2017, compared to the previous week’s forecast of 3.70 and 3.81 a month ago, according to a July 8 central bank survey of about 100 analysts. Analysts also see the real at 3.40 per U.S. dollar at the end of this year, from 3.46 the prior week, the survey showed.

Brazil’s Acting President Michel Temer is working to convince lawmakers and investors that his policies will help plug a budget gap and lift the economy out of its deepest recession in decades. Policy makers have pledged to reduce the fiscal deficit, as they work to push proposals through Congress that limit spending and debt levels. Meanwhile, the central bank continues to hold the key rate steady in efforts to slow inflation to target by the end of 2017.

Brazil’s government will target a 2017 budget gap before interest payments of 139 billion reais ($42.1 billion), compared to this year’s target of 170.5 billion reais, Finance Minister Henrique Meirelles said on July 7. The economy will grow next year and tax income will rise, he said.

Brazil’s real has strengthened 20 percent year-to-date, representing the biggest gain among 31 major currencies tracked by Bloomberg. That jump prompted the central bank to start the sale of so-called reverse currency swaps, which are derivatives designed to curb the real’s rise. The currency closed at 3.30 per U.S. dollar on July 8.

Consumer inflation slowed to 8.84 percent in 12 months through June, marking the slowest pace since May 2015 but still far from the official target of 4.5 percent. Reaching that goal by the end of next year is ambitious, yet believable, central bank president Ilan Goldfajn has said.

Analysts in the central bank survey forecast Brazil’s gross domestic product will shrink 3.30 percent this year, compared to the previous week’s estimate of a 3.35 percent decline. They maintained their forecast of 1 percent growth next year.

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