Bloomberg News

Brazil’s Real Drops for Weekly Loss on Slower China Growth

April 13, 2012

Brazil’s real declined for the sixth week in seven as slower-than-forecast growth in China and concern that the government will take measures to weaken the Latin American currency fueled bets that inflows will wane.

The real fell 0.6 percent to 1.8386 per U.S. dollar at 6 p.m. in Sao Paulo, bringing its weekly loss to 0.9 percent.

The real slid along with most major and emerging-market currencies today after China said gross domestic product expanded 8.1 percent in the first quarter, the smallest increase since mid-2009 and less than the 8.4 percent growth predicted in a Bloomberg survey of economists. The figures spurred speculation inflows will be curbed as demand for exports from China, Brazil’s biggest trading partner, slows.

“The GDP number from China was bad even though the country still maintained high growth levels,” Jose Carlos Amado, a currency trader at Renasensca DTVM Ltda., said by phone from Sao Paulo. “The dollar tends to have more support reacting to China.”

Brazil’s central bank bought dollars in the spot market for a third consecutive day. The bank has intervened in the spot market 17 times since the beginning of March as President Dilma Rousseff vows to protect manufacturers from the “monetary tsunami” created by developed nations that had driven up the real.

Brazil’s currency has traded weaker than the 1.80 level since mid-March, when the government expanded financial taxes to discourage capital inflows and protect exporters.

Yields on the interest-rate futures contract due in January 2014 fell two basis points, or 0.02 percentage point, to 9.11 percent.

‘Risk Aversion’

“The China numbers were more disappointing than expected, and Spain borrowing record amounts from the European Central bank is contributing to risk aversion,” said Luciano Rostagno, chief strategist at Banco West LB in Sao Paulo. “These two declining factors favor a further drop in rates.”

Spanish banks’ borrowings from the ECB jumped by almost 50 percent in March, reaching the most on record, as lenders tap emergency loans and channel some of it into sovereign debt purchases.

Brazil’s retail sales declined 0.5 percent in February from January, the national statistics agency said. The median estimate in a Bloomberg survey of 34 analysts was for a 0.3 percent drop. Retail sales rose 9.6 percent from the year- earlier period.

Tax Cuts

Brazil last month extended tax cuts for appliances including washing machines and refrigerators to stimulate consumer spending that’s been driving economic growth amid a global slowdown and shrinking output by manufacturers hurt by currency gains. Since August,Rousseff’s administration has also reduced the benchmark interest rate five times and pledged to boost public investments to achieve economic growth of 4.5 percent this year.

In the minutes of its March 6-7 meeting, the central bank said there’s a “high probability” that the benchmark Selic rate will fall to just above its record low 8.75 percent and stay there.

Rostagno said the market expects the central bank to cut rates to 9 percent this month and is split over whether the bank will make a further cut in May.

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

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


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