Brazil’s real dropped past 2 per dollar for a second day as President Dilma Rousseff said it has been “extremely overvalued,” encouraging speculation the currency of Latin America’s biggest economy may fall further.
The real dropped yesterday to that level for the first time in almost three years after Finance Minister Guido Mantega said the exchange rate doesn’t worry the government and as Greece’s turmoil sapped demand for Brazil’s assets. The currency has slid 6.7 percent in 2012, making it the biggest loser among the 16 most-traded counterparts tracked by Bloomberg.
“What’s driving the currency market is the external environment, but there is also the will of the government that creates an expectation of depreciation,” Deives Ribeiro, the head of foreign-exchange trading at Fair Corretora de Cambio e Valores, said by phone from Sao Paulo.
The real slid 0.3 percent to 2.0019 per U.S. dollar today after earlier dropping to 2.0056. The currency touched 2.0062 yesterday, the weakest level since July 2009.
The yield on the Brazilian interest-rate futures contract due in January 2014 fell six basis points, or 0.06 percentage point, to 8.32 percent today. The yield dropped as traders stepped up bets that central bank President Alexandre Tombini will cut the target lending rate further to support growth amid the global slowdown.
“Tombini has been pretty emphatic that he will continue with the process of rate cuts if there is space,” Ures Folchini, head of fixed income at Banco WestLB do Brasil SA, said in a phone interview from Sao Paulo.
Rousseff on Rates
High interest rates that are “incompatible” with the rest of the world pose an obstacle to faster economic growth, Rousseff said today at a meeting of mayors in Brasilia, where she also gave her assessment of the currency.
Brazil’s target rate has dropped 3.5 percentage points to 9 percent since Aug. 31, the most among the world’s 25 largest economies, according to data compiled by Bloomberg. Policy makers may reduce the benchmark to as low as 8 percent by the end of August, trading in interest-rate futures shows.
The central bank bought $7.2 billion in the spot market in April, the most since $8.4 billion in March 2011, to help exporters by weakening the local currency.
“The government decides what the level should be and spends all the money it can to get it there,” said Pablo Cisilino, who helps oversee about $30 billion in emerging-market debt at Stone Harbor Investment Partners, in a telephone interview from New York.
The Bovespa index fell, erasing this year’s advance, as Brazilian homebuilders plunged after reporting earnings that trailed analysts’ estimates.
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