Brazil’s real fell the most among major currencies as economists surveyed by the central bank lowered their 2014 growth outlook for a sixth straight week.
The real (CME:L6N14) declined 0.4% to 2.2218 per U.S. dollar at 12:10 p.m. in Sao Paulo, the biggest drop among 16 major currencies tracked by Bloomberg. Swap rates on contracts maturing in January 2017 fell three basis points, or 0.03 percentage point, to 11.40%.
Economists reduced their growth forecast for this year to 1.07% from 1.10% a week earlier, according to the median of about 100 estimates in a central bank survey published today. Moody’s Investors Service said in a research report published today that Brazil’s slower growth and accelerating inflation are credit-negative.
“Expectations for the second half of the year aren’t good, and the currency reflects that bad sentiment,” Reginaldo Galhardo, foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview.
Annual inflation accelerated to 6.51% in the 12 months through June, according to the median forecast of economists surveyed by Bloomberg before tomorrow’s report from the national statistics agency. That would be faster than the 6.5% upper limit of the official target range.
The winner of the October presidential election will face weak economic growth, persistently high inflation and “a general sense of pessimism regarding near-term economic prospects,” Moody’s senior credit officer Mauro Leos wrote.
Moody’s has maintained Brazil at Baa2, the second-lowest level of investment grade, since June 2011. Standard & Poor’s cut Brazil one level lower to BBB- on March 24.
A slowing economy spurred policy makers to hold the target lending rate at 11% on May 28 after nine consecutive increases to curb inflation.
To bolster the real and limit import price increases, Brazil sold $199 million of currency swaps today. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.