Bloomberg News

Brazilian Real Posts Weekly Decline on China Slowdown Concern

October 21, 2011

Oct. 21 (Bloomberg) -- The real posted its first weekly loss in three on concern the economic slowdown in China, Brazil’s biggest trading partner, will limit domestic expansion.

The real fell 2.4 percent this week to 1.7755 per dollar, from 1.7328 on Oct. 14. The currency advanced 0.3 percent today.

China’s stocks fell today, capping the Shanghai Composite Index’s steepest weekly drop in five months, on speculation slowing economic growth and the nation’s tighter monetary policies are hurting earnings. Commodities and most other global stocks advanced on optimism European policy makers are moving closer to containing the debt crisis.

“For emerging markets, the outlook is more complicated” because they will suffer more from slowing Chinese growth and a potential breakdown in the talks on Europe, Mauricio Junqueira, a money manager at Squanto Investimentos, said in a telephone interview from Sao Paulo. “Until the talks are done, the market will remain very volatile.”

The real gained as much as 0.8 percent earlier as European finance ministers began a six-day battle to prevent a Greek default and shield banks, approving a 5.8 billion-euro ($8 billion) loan to Greece. European governments may combine a temporary and permanent rescue fund to pool as much as 940 billion euros to fight the crisis, two people familiar with the matter said yesterday.

‘Volatility’

“With less risk aversion, the real tends to strengthen,” Eduardo Galasini, head of treasury at Banco Banif, said by phone from Sao Paulo. “The situation is still complicated, and there’s a lot of volatility.”

Yields on most Brazilian interest-rate futures contracts fell on speculation slowing inflation will allow the central bank to continue lowering borrowing costs. The yield on the contract due in January 2013 dropped two basis points, or 0.02 percentage point, to 10.48 percent.

Brazil’s inflation rate fell for the first time in 14 months in mid-October, the national statistics agency said yesterday. Consumer prices, as measured by the IPCA-15 index, rose 7.12 percent in mid-October from a year earlier, down from 7.33 percent the previous month. Central bank President Alexandre Tombini has repeatedly pledged to slow inflation to 4.5 percent by the end of 2012.

“Inflation is in the process of converging to the target,” Andre Perfeito, chief economist at Sao Paulo-based Gradual Investimentos, said in a telephone interview. “There’s space for the central bank to continue cutting rates.”

Brazil’s central bank voted unanimously Oct. 19 to reduce the benchmark Selic rate to 11.5 percent from 12 percent as economic growth slows.

Policy makers said in a statement that a “moderate adjustment” in the rate “is consistent” with the goal of bringing inflation to target by 2012.

--With assistance from Gabrielle Coppola in Sao Paulo. Editors: Glenn J. Kalinoski, Marie-France Han

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulous@bloomberg.net


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