Bloomberg News

Brazil’s Real Posts Biggest Quarterly Drop Since December 2008

September 30, 2011

Sept. 30 (Bloomberg) -- Brazil’s real fell, adding to the biggest quarterly slide since 2008, as mounting concern that the global economic recovery is in peril and prospects for lower domestic interest rates damped the allure of the nation’s fixed- income assets.

The real weakened 2.1 percent to 1.8794 per dollar at 5 p.m. New York time, from 1.8403 yesterday. The currency lost 17 percent since the end of June, the second biggest decline among 25 emerging-market currencies tracked by Bloomberg after the Polish zloty. Yields on Brazilian interest-rate futures contracts maturing in January 2013 declined 14 basis points, or 0.14 percentage point, to 10.33 percent today. That brings the fall this quarter to 236 basis points.

Global stocks and commodities slumped today after reports showed U.S. consumer spending slowed, Chinese manufacturing contracted for a third straight month and German retail sales declined the most in more than four years. Brazil can’t let pass the opportunity afforded by the global financial crisis to lower interest rates, President Dilma Rousseff said today in her strongest call yet for the central bank to continue cutting borrowing costs.

“Brazil has been adversely affected by risk sentiment driven by the threat of the global slowdown,” said Kathryn Rooney Vera, an emerging markets analyst at Bulltick Capital Markets in Miami. “Brazil’s real has been punished even more because of the internal policy risk. You have a central bank losing credibility with their monetary policy not consistent with inflation.”

Policy makers cut the benchmark interest rate a half percentage point on Aug. 31 to 12 percent even as annual inflation rose to a six-year high. The central bank predicts the annual inflation rate will fall next year from 7.33 percent in mid-September as global growth slows amid the European debt crisis and U.S. economic slump, according to a report it released yesterday.

‘Ammunition’ for Rate Cut

Rousseff, at an event in Sao Paulo, said it is “inadmissible” for policy makers not to take into account the possibility of a recession and even a depression in the global economy. Government efforts to contain spending are creating space for the central bank to begin a “cautious” and “responsible” cycle of rate cuts, she said.

Brazil has “all the ammunition” it needs to lower its benchmark interest rate, Finance Minister Guido Mantega said at the same event. If the global financial crisis deepens, Brazil would prefer to use monetary policy instead of fiscal stimulus to boost economic growth, he said.

The real needs to fall a further 10 percent to 15 percent against the dollar in order to be a more “interesting” investment, Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an interview in London today.

G20 Measures

The central bank’s decision to cut the benchmark interest rate last month was “quite smart,” and the Group of 20 nations may agree to take coordinated measures to cut interest rates at their November meeting, O’Neill said.

Brazil’s budget surplus before interest payments narrowed in August to its lowest in nine months, the central bank said in a statement distributed today in Brasilia.

The primary surplus, which includes federal and local governments as well as state companies, fell to 4.6 billion reais ($2.4 billion) from 13.8 billion reais in July. The figure was lower than the median estimate of 5.2 billion reais from 12 economists surveyed by Bloomberg.

--With assistance from Felipe Frisch and Alexander Cuadros in Sao Paulo, Matthew Bristow in Bogota. Editors: Richard Richtmyer, Glenn J. Kalinoski

To contact the reporters on this story: Josue Leonel in Sao Paulo at; Ye Xie in New York at

To contact the editor responsible for this story: David Papadopoulos in New York at

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