Bloomberg News

Brazil Real Weakens on Bets Europe Debt Crisis Isn’t Near End

October 17, 2011

Oct. 17 (Bloomberg) -- Brazil’s real fell from a one-month high after German Chancellor Angela Merkel’s spokesman said there will be no quick end to the European debt crisis that is endangering global economic growth.

The real weakened 2.4 percent to 1.7741 per U.S. dollar today, from 1.7328 on Oct. 14. The currency gained 2.2 percent last week and reached 1.7265 on Oct. 14, the strongest level since Sept. 16.

European leaders won’t fulfill any “dreams” of a quick end to the situation at their Oct. 23 summit, Steffen Seibert, Merkel’s chief spokesman, told reporters in Berlin today. Brazil could experience an exodus of capital should the European sovereign-debt crisis worsen, an International Monetary Fund director said in an interview.

“The market remains wary,” said Andre de Carvalho Ferreira, director of Nova Futura DTVM Ltda., a brokerage firm in Sao Paulo.

Worsening debt problems in Greece and other European countries could have consequences on trade, IMF Executive Director Paulo Nogueira Batista Jr. said in an interview in Paris yesterday. He said he doesn’t expect an exacerbation of the crisis.

Yields on Brazil’s interest-rate futures contracts due in January 2013 held at 10.55 percent. Futures contracts suggest traders bet the central bank will lower the benchmark interest rate a half percentage point from 12 percent at a two-day meeting ending Oct. 19, according to data compiled by Bloomberg.

Inflation Outlook

Economists covering Brazil raised their 2012 inflation forecast for a seventh week. Consumer prices will increase 5.61 percent next year, according to the median forecast in an Oct. 14 central bank survey of about 100 economists published today, up from a forecast of 5.59 percent the previous week. Economists also raised their 2013 inflation forecast to 4.9 percent from 4.85 percent.

Policy makers cut the benchmark interest rate a half percentage point from 12.5 percent on Aug. 31, after raising it five times this year. Annual inflation was 7.31 percent last month, the fastest in six years.

Reports last week showed growth in Latin America’s largest economy was slower than analysts forecast. Retail sales contracted 0.4 percent in August, the biggest drop since March 2010, while the economic activity index, a proxy for gross domestic product, fell 0.53 percent, the most since December 2008.

“The central bank is pretty comfortable with the assumption that inflation will come down,” Mauricio Junqueira, who helps manage about $300 million at Squanto Investimentos in Sao Paulo, said in a telephone interview. “There’s a great chance we’ll get negative GDP growth in the third quarter. Slower activities at some point will get inflation down.”

--With assistance from Arnaldo Galvao in Brasilia. Editors: Marie-France Han, Glenn J. Kalinoski

To contact the reporters on this story: Josue Leonel at jleonel@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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