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
28 Sep
PNDORA
Goodwrench!!! Jeg er glad for, at du tjener mange penge. Jeg er glad for, at du følger en strategi, ..
62
27 Sep
OMXC20CAP
Så mangler vi bare, at du sletter din profil !   :D   Gobe
58
28 Sep
PNDORA
  Jeg har flere gange, senest den 4. juli 2016, analyseret og forklaret Pandoras forretningsmodel og..
26
28 Sep
NOVO-B
  Jeg har tidligere (blandt andet 8/8 2016) analyseret Novo og offentliggjort min beregning af, hvad..
24
25 Sep
 
Professor Jesper Rangvid fra CBS kom fredag med en stor kritik af private danske aktionærer. Han har..
14
26 Sep
SDRLO
Jeg vil gerne påtage mig selv status som euroinvestors officielle lortemand. Jeg advarer mod lorteak..
13
26 Sep
FING-B
Please, lad nu idioten være...   Det er jo kun fordi vi bliver ved med at fodre disse total idioter ..
13
26 Sep
OMXC20CAP
Er der ikke en admin eller sådan noget der kan slette baronen? Magen til evnesvag person der er yder..
13
29 Sep
ZEAL
Le petit Baron   Har du nogensinde spekuleret over hvor trættende det er, at beskæftige sig med pers..
12
29 Sep
CBRAIN
Alfen gør et seriøst stykke arbejde og er altid seriøs i debatten uden nedsættende kommentarer. Det ..
11

OZ Management LP : Form 8.3 - London Stock Exchange Group Plc

30/09/2016 13:53:39
FORM 8.3 PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY A PERSON WITH INTERESTS IN RELEVANT SECURITIES REPRESENTING 1% OR MORE ..

Admiral Group PLC : Total voting rights

30/09/2016 10:56:00
Admiral Group Plc ("the Company")  30 September 2016  Voting Rights and Capital For the purposes of the Financial Conduct Authority's Disclosure and Tr..

Form 8.5 (EPT/RI) - UK Mail Group plc

30/09/2016 07:58:41
FORM 8.5 (EPT/RI) PUBLIC DEALING DISCLOSURE BY AN EXEMPT PRINCIPAL TRADER WITH RECOGNISED INTERMEDIARY STATUS DEALING IN A CLIENT-SERVING CAPACITY ..

Most read news

  • 24 hours
  • 48 hours
  • 1 week
1
SFL - Ship Finance International Limited Announces Offering of Convertible Senior Notes
2
Zealand raises DKK 143 million / $22 million through a private placement of new shares
3
SFL - Ship Finance International Limited Announces Offering of Convertible Senior Notes
4
Bionor Pharma - Preliminary result of the rights issue
5
Golar LNG Partners L.P. Board Changes

Buy and sell signals

  • Trend
  • Moneymachine

Copyright Euroinvestor A/S 2016   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.
 
30 September 2016 21:15:05
(UTC) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20160921.1 - EUROWEB3 - 2016-09-30 22:15:05 - 2016-09-30 21:15:05 - 1000 - Website: OKAY