Brazil hits real low

Brazil’s real (CME:L6M14) declined as economists surveyed by the central bank reduced their growth forecast for this year to the lowest level ever.

The real depreciated 1.2 percent to 2.2681 per dollar at 11:33 a.m. in Sao Paulo, poised for the weakest level on a closing basis since April 3. It was the worst performer among 24 developing-nation currencies tracked by Bloomberg.

Economists cut the median growth estimate for Brazil this year to 1.5 percent from a 1.63 percent forecast last week, according to the median response of about 100 analysts in a central bank survey published today.

“The numbers regarding growth have been very frustrating and expectations for this year are falling considerably,” Juliano Ferreira, strategy analyst at Icap do Brasil in Sao Paulo, said in a telephone interview. “We should see a depreciation of the real as a natural reaction to that.”

Today, Brazil’s central bank sold $193.4 million of swaps it auctions to bolster the real and contain import prices. The central bank started offering the swaps last year and is due to end the sales this month.

Central bank President Alexandre Tombini said May 22 at Bloomberg LP’s office in Sao Paulo that there has been “a certain drop in demand” in currency swaps. Traders interpreted the comment as a sign that he may cut back the program.

Brazil’s currency has climbed 4.1 percent this year in the second best performance among 24 developing countries after India’s rupee, advancing partly on speculation President Dilma Rousseff will face a runoff following October’s first-round vote after overseeing stalled growth.

Falling Investments

Brazil’s economy increased 0.2 percent in the first quarter, half the pace of the revised growth figure recorded during the last three months of 2013, the national statistics agency said on May 30. Investment fell 2.1 percent in the quarter, while family consumption dropped 0.1 percent.

J.P. Morgan & Chase Co. analysts cut their GDP growth forecast to 1.3 percent for this year from 1.4 percent. Household demand and private investments should continue to trend sideways, in line with recent deterioration in confidence surveys, while fiscal concerns should prevent much higher public demand growth, analysts led by Cassiana Fernandez wrote in a report published May 30.

In the interest-rate futures market, swap rates on contracts maturing in January 2017 advanced four basis points, or 0.04 percentage point, to 11.69 percent, after declining 62 basis points last month.

The central bank on May 28 held the benchmark Selic unchanged at 11 percent after increasing borrowing costs by 375 basis points during nine previous meetings. In an accompanying statement, policy makers said they decided “at this moment” not to move borrowing costs.

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