Brazilian Real Weakens to Lowest in a Month on Economic Growth Concern

Brazil’s real sank below 1.8 per dollar for the first time in a month as sovereign debt concerns in the U.S. and Europe fueled speculation global growth is weakening, sapping demand for higher-yielding assets.

The real fell 1 % to 1.8037 per dollar at 11 a.m. in Sao Paulo, from 1.7865 on Nov. 18. The currency earlier touched 1.8118 per dollar, the weakest level since Oct. 6. Only the Philippine peso gained today among 25 developing currencies tracked by Bloomberg.

The real tumbled as U.S. lawmakers failed to agree on budget cuts and Germany’s Finance Ministry said the country’s expansion is “noticeably slower” this quarter. Brazil’s government may reduce its forecast for economic growth this year to 3.5 % after cutting its estimate to 3.8 % on Nov. 18, O Estado de Sao Paulo reported, citing Deputy Finance Minister Nelson Barbosa.

“We have lots of bad news abroad weighing on stocks, interest rates and currencies,” Mauricio Junqueira, who helps oversee about $300 million at Squanto Investimentos in Sao Paulo, said in a telephone interview. “Certainly the dollar is changing its range.”
Futures Yields Rise

Yields on Brazil’s interest-rate futures contracts rose as speculation a weaker real will exacerbate inflation pressures overshadowed data showing economists lowered their 2012 inflation forecast for a fifth week.

Yields on the futures contract due in January 2013, the most actively-traded today in Sao Paulo, rose one basis point, or 0.01 %age point, to 9.94 %.

Economists covering Brazil cut their 2012 inflation forecast for the fifth straight week, as economic growth slows more than analysts had forecast.

“The possible pass-through of a stronger dollar for inflation is pressuring the interest-rate curve,” Eduardo Galasini, the head of treasury at Banco Banif in São Paulo, said in a telephone interview. “The climate in the external market is one of risk aversion.”

Consumer prices will increase 5.55 % next year, according to the median forecast in a Nov. 18 central bank survey of about 100 economists published today. That compares with an estimate of 5.56 % the previous week. Prices, as measured by the IPCA index, will rise 6.48 % this year, unchanged from last week’s forecast, the survey found.

Brazil policy makers target inflation of 4.5 %, plus or minus two %age points. Inflation has exceeded the upper limit of the target range for the last seven months.

Brazil’s economy grew at its slowest pace in two years in September, cementing bets the central bank will keep cutting rates to prevent a recession. Economic activity, a proxy for gross domestic product, expanded 1.17 % in September from a year earlier. The increase was lower than the median forecast of 1.25 % from 14 analysts surveyed by Bloomberg.