Major currencies take a dive

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.
 

Economic ‘Pessimism’
 

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.

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