28/03/2013 20:06:00

Brazil Real Weakens To BRL2.02/Dollar On Worsening Fundamentals

By Paulo Winterstein

SAO PAULO--Brazil's real weakened Thursday on concern the currency's fundamentals are worsening after the central bank boosted its inflation forecast for this year and next.

The real exited active trading at BRL2.0202 to the dollar, according to Tullett Prebon via FactSet, weaker than Wednesday's close at BRL2.0066 to the dollar.

After initial strength as global currencies climbed against the dollar, the real weakened in afternoon trading.

"There is a deterioration of the fundamentals underpinning Brazil's currency," said Ricardo Matone, currency trader at asset manager M Safra in Sao Paulo. "We're working with higher inflation and the government seems reticent to control it in a more effective way; inflows have disappointed, forcing a downward revision of balance of payments."

Brazil's central bank, which said during its latest monetary-policy meeting that inflation has proven resilient and may have reached "a new and higher plateau," increased its inflation forecast for 2013 to 5.7% from a previous estimate of 4.8%. Inflation is likely to stay high above the bank's target of 4.5% next year as well, with inflation likely ending 2014 at 5.3%, up from a previous estimate of 4.9%, the bank said Thursday in its quarterly inflation report.

Investors are increasingly expecting interest-rate increases in coming months as inflation climbs toward the 6.5% upper limit of the bank's inflation target.

Markets backed off on those bets Wednesday after Brazilian President Dilma Rousseff said she was opposed to "policies to combat inflation that seek to reduce economic growth." Ms. Rousseff later asked Central Bank President Alexandre Tombini to clear up any confusion her comments may have caused, and Mr. Tombini told Agencia Estado news agency that "when it becomes necessary to use the instruments of monetary policy to control inflation, that will happen."

Still, Ms. Rousseff's comments wreaked havoc on the market on the view that policy makers were reluctant to raise rates to rein in inflation. The real weakened to BRL2.0252 per dollar Wednesday morning before the central bank intervened directly in the market via the currency-swap auction. Swap auctions allow investors to exchange contracts linked to domestic interest rates for paper indexed to the U.S. dollar. The auction tends to weaken the dollar and strengthen the real by putting more dollar-hedged contracts in investors' hands.

The auction also reinforced many investors' views that policy makers want to keep the real trading between a band of BRL1.95 to BRL2 per dollar. The real has been trading within that range since late January on the outlook that it doesn't hurt the competitiveness of Brazilian exports, but also doesn't increase the cost of imports, which would pressure inflation.

On Thursday, however, the central bank remained quiet, not holding any auctions. M. Safra's Mr. Matone said that further weakness, however, could see more government action.

"If the market tests the bank a little more and the real goes to 2.03 (per dollar), we could see the government easing some of the currency restrictions so that there are stronger inflows," he said, referring to taxes the government had imposed in the past to contain strength in the real.

Write to Paulo Winterstein at paulo.winterstein@dowjones.com

(END) Dow Jones Newswires

March 28, 2013 16:06 ET (20:06 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

Post comment

Related debate

  • 1 week
  • 1 month
  • 1 Year
26 Oct
VWS
Fra tid til anden lytter jeg til Solveig Bjørnestad’s P1 Business. Hun er dygtig til at lave en 360 ..
36
27 Oct
VWS
Normal 0 21 false false false DA X-NONE X-NONE ..
26
28 Oct
I:SP500
Det ser grundlæggende ganske fint ud makroøkonomisk, hvilket ikke er det samme som at der ikke finde..
16
26 Oct
BAVA
Jeg synes du skulle lade være med at bekymre dig om kortsigtede udsving, og ganske enkelt gå lang i ..
16
29 Oct
VWS
Hej Pokerchamp, det du kalder 'amatør-detektiv'-arbejde er langt mere informativt end dine ukonstruk..
14
28 Oct
VWS
 Fredag d. 3. okt. i år var den norske Olie- og energiminister Tord Lien og næstformand for det nors..
14
30 Oct
VWS
Jeg sad ellers lige og kiggede endnu en ordre i Polen   34 MW Postolin Wind Farm   Den ordre må være..
13
29 Oct
FING-B
Swift - det er jo fuldkommen ligegyldigt hvad vi siger eller gør så synes du og dit slæng det er for..
12
31 Oct
 
Hej alle,   Hermed en lille service mail til alle jer udbytte investorer (ligesom mig selv). Herunde..
11
30 Oct
DANSKE
Og pludselig savner jeg alligevel den der "røde tommel ned"  der endgang var her på EI 
11

Tech Companies Send Criticism Along With NSA-Related Data -- Update

04/02/2014 00:06:00
By Danny Yadron Technology companies including Google Inc. and Microsoft Corp. released new figures on the amount of data requests they received from U.S. ..

U.S. Hot Stocks: Hot Stocks to Watch

03/02/2014 14:07:00
Among the companies with shares expected to actively trade in Monday's session is Herbalife Ltd. (HLF). Herbalife Ltd. (HLF) raised its fourth-quarter outl..

Pfizer Study Meets Primary Endpoints

03/02/2014 13:05:00
Pfizer Inc. (PFE) said Monday that a Phase 2 trial of its advanced breast cancer treatment met its primary endpoint. Pfizer said a study comparing the effec..

Most read news

  • 24 hours
  • 48 hours
  • 1 week
1
HEINEKEN majority owned subsidiaries Nigerian Breweries plc and Consolidated Breweries plc issue notice of Extraordinary General Meeting regarding Scheme of Merger
2
USG People acquires stake in Blue Carpet
3
Biogen Idec and Sobi announce European Medicines Agency validates Elocta(TM) (rFVIIIFc) Marketing Authorisation Application for review
4
Groupe Casino: CNOVA N.V. LAUNCHES INITIAL PUBLIC OFFERING
5
Novartis BNP Paribas Primary New Issues : Stabilisation Notice
Euroinvestor around the globe: Euroinvestor.dk | Euroinvestor.se | Euroinvestor.no | Euroinvestor.fr | Forexinvestor.com| Wisselkoersen.nl | Valuta.se | Valutaveksel.no | Divisas.es | Valute.it
Copyright Euroinvestor A/S 2014   Disclaimer and Terms of Use
Quote information is delivered by Interactive Data.
Data is delayed 15-20 minutes according to the distribution agreements set by the different exchanges.
 
01 November 2014 09:31:25
(UTC) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20141028.2 - EUROWEB5 - 2014-11-01 10:31:25 - 2014-11-01 09:31:25 - 1000 - Website: OKAY