Bloomberg News

Brazil Real Tumbles to Seven-Week Low on Slowing China Growth

November 24, 2011

Nov. 23 (Bloomberg) -- Brazil’s real tumbled to the lowest level in seven weeks as a deepening European debt crisis and a contraction in manufacturing in China, the country’s biggest trading partner, added to signs of a faltering global economy.

The real declined 2.6 percent to 1.8668 per U.S. dollar at 5:35 p.m. in Sao Paulo, from 1.8183 yesterday. It earlier touched 1.8743, the lowest since Oct. 4.

Germany’s 10-year bond yield surged after the government failed to get sufficient bids at an auction today. China’s manufacturing may contract this month by the most since March 2009, a preliminary purchasing managers’ index showed. Brazil’s economy expanded 0.3 percent in the third quarter, the slowest pace in more than two years and less than half the 0.8 percent growth in the second quarter, according to an estimate given to Congress by the Finance Ministry in Brasilia.

“The situation in the global market is ugly,” said Hideaki Iha, a currency trader at Fair Corretora de Cambio e Valores. “With the danger out there, nobody wants to buy the real.”

Yields on most Brazilian interest-rate futures contracts declined as traders bet slowing global growth will spur the central bank to accelerate the reduction of borrowing costs.

Yields on the contract due in January 2013 fell 11 basis points, or 0.11 percentage point, to 9.9 percent, the lowest level since 2007. The yields indicated traders are betting the central bank will lower benchmark borrowing costs as much as 75 basis points at the policy meeting on Nov. 30 to 10.75 percent, following two 50-basis-point cuts since August.


“What is moving the rate-futures market today is the crisis in international markets,” Roberto Padovani, chief economist at Votorantim CTVM Ltda, said in a telephone interview from Sao Paulo. “Whether the crisis gets worse or not is what’s going to impact activity in Brazil.”

Policy makers have cut interest rates since August and eased curbs on credit this month to shield Latin America’s biggest economy from a slowdown in global growth. The government will do everything possible to reduce the cost of credit and help spur economic growth, Finance Minister Guido Mantega told reporters in Brasilia today.

Credit growth in Brazil last month slumped to its lowest level since January after a bank workers’ strike interrupted operations and Latin America’s biggest economy showed signs of cooling.

Outstanding credit rose 0.8 percent from September to 1.95 trillion reais ($1.1 trillion), after a 2.1 percent increase in September from August, the fastest pace of the year, the central bank said in a report distributed today in Brasilia.

Consumer-Loan Interest

The average interest rate charged on consumer loans rose to 47 percent, from 45.7 percent in September, while the average rate on company loans fell to 29.8 percent from 30 percent.

Brazilian consumer prices, as measured by the IPCA-15 index, rose 0.46 percent through mid-November from the previous month, the national statistics agency said today. Economists expected a monthly increase of 0.47 percent, according the median of 43 estimates compiled by Bloomberg.

The real lost 8.6 percent this year through yesterday. The currency may tumble to as low as 2.4 per dollar, a further 24 percent drop, as the global economy slows, said Stephen Jen, a managing partner at SLJ Macro Partners LLP and a former head of global currency strategy at Morgan Stanley.

“Brazil is vulnerable,” said Jen in a telephone interview. “All we need is a scare with global commodities adjusting to the revision of the outlook in China.”

China overtook the U.S. in 2009 as Brazil’s largest trading partner, buying everything from iron ore to soybeans. Commodity exports made up 11 percent of Brazil’s GDP in 2010, according to the national statistics agency.

The Chinese manufacturing reading of 48 reported by HSBC Holdings Plc and Markit Economics today compares with a final number of 51 last month. A number below 50 indicates a contraction.

--With assistance from Matthew Bristow and Arnaldo Galvao in Brasilia and Ye Xie in New York. Editors: Richard Richtmyer, Marie-France Han

To contact the reporters on this story: {Josue Leonel} in Sao Paulo at; {Gabrielle Coppola} in Sao Paulo at

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

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