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
18 Oct
OMXC20
Data herunder er lavet på C20 Cap og C20 vægtet til at passe til C20 Cap i 2010 og 2011.   Siden den..
66
17 Oct
VWS
Normal 0 21 false false false DA X-NONE X-NONE ..
28
17 Oct
I:SP500
  Hvorfor aktiemarkedet ikke er blevet for dyrt   I mit indlæg vedr. aktie- og vækstkrise beskrev je..
21
16 Oct
I:SP500
  @bgadk – enig i, at en moderat inflationær politik der holder deflations-spøgelset nede, er præcis..
20
20 Oct
VELO
Match, så har jeg set lidt på mine handler og depoter.   Må begynde med at konkludere, at mit handel..
17
20 Oct
VELO
Tvivler på at du får ret. Aktieanalytikerne siger allerede før godkendelsen en KORTSIGTET kurs på 2..
17
21 Oct
VWS
Hvis du var en ludo brik var du så ikke slået hjem nu ???
14
22 Oct
VWS
Pokerchamp - Per Vimmer er gulddrengen trænet hos Goldman Sachs, som har lært den superliberalistisk..
13
22 Oct
BAVA
Jeg tror ikke, at mange her i dette forum er i tvivl om, hvem der er et fjols... Du får det til at l..
12
21 Oct
VWS
Vestas øverst chef for "Americas" - Chris Brown virker meget optimistisk. Han har udtalt til Recharg..
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
Gemalto third quarter 2014 revenue
2
Bavarian Nordic Announces Expanded Collaboration with Janssen on MVA-BN® for Additional Infectious Disease Targets
3
JCPenney Announces Defeasance of 6.875% Medium-Term Notes due 2015
4
AIR Estimates Insured Losses in Bermuda from Hurricane Gonzalo To Range Between USD 200 Million and USD 400 Million
5
Orange : Board of Directors co-opts Mouna Sepehri as new Director
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.
 
23 October 2014 16:08:12
(UTC) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20141015.1 - EUROWEB4 - 2014-10-23 17:08:12 - 2014-10-23 16:08:12 - 1000 - Website: OKAY