Bloomberg News

Real Declines as Brazil’s GDP Outlook Cut, Spain’s Yields Soar

June 18, 2012

The real fell for the first time in three days after Spanish bond yields rose to a record following Greece’s election and analysts in a Brazilian central bank survey lowered their forecasts for economic growth.

The currency depreciated 0.4 percent to 2.0590 per U.S. dollar. Yields on the Brazilian interest-rate futures contract due in January 2014 fell for the eighth time in nine days, retreating four basis points, or 0.04 percentage point, to 8.05 percent.

“There was a slight improvement with the Greek election, but the situation continues to be uncertain,” Luis Otavio de Souza Leal, chief economist at Banco ABC Brasil SA, said in a phone interview from Sao Paulo. “The focus is back on Spain.”

Brazil’s gross domestic product will expand 2.3 percent in 2012, compared with a forecast of 2.53 percent a week earlier, according to the median estimate in a central bank survey of about 100 analysts published today. The economy expanded 2.7 percent last year.

Mexico will grow 3.72 percent this year, according to a central bank survey of 29 economists released June 1. The economists raised forecasts for a fifth straight month.

Spanish 10-year bonds fell, pushing yields above 7 percent for the first time since the euro was introduced in 1999, as a jump in bad loans fueled concern the debt crisis is deepening. Greek bonds rallied after pro-bailout parties won enough seats to control parliament.

‘Permanent Uncertainty’

“The exchange rate depends on the foreign environment in which Europe is in a crisis that keeps dragging on, with permanent uncertainty,” Roberto Padovani, chief economist at Votorantim CTVM Ltda., said in a phone interview from Sao Paulo.

Brazil’s Finance minister Guido Mantega told reporters in Los Cabos, Mexico, today that Europe’s anti-crisis response has been insufficient and the largest emerging-market nations will announce their additional contribution to the International Monetary Fund at a Group of 20 meeting in Mexico.

Yields on Brazilian rate futures dropped after the central bank survey showed analysts expect policy makers to reduce borrowing costs to a record low 7.5 percent this year, a bigger cut than previously forecast.

“Projections for the Selic rate fell straight from 8 to 7.5 percent, without stopping at 7.75 percent,” Souza Leal said.

More modest growth will help slow inflation, the central bank survey showed. Consumer prices will rise 5 percent in 2012, compared with a week-earlier forecast of 5.03 percent.

Economic Growth

The seasonally adjusted economic activity index, a proxy for gross domestic product, rose 0.22 percent in April after contracting a revised 0.61 percent in the previous month, the central bank reported June 15. Analysts expected a 0.24 percent increase, according to the median estimate in a Bloomberg survey of 21 economists.

“Economic growth moved deeper below trend and continues to slow, reinforcing Brazil’s underperformance against the rest of the region,” Flavia Cattan-Naslausky, a local markets strategist at Royal Bank of Scotland Group Plc, said in a report today. “The real will continue to underperform.”

To contact the reporter on this story: Blake Schmidt in Bogota at bschmidt16@bloomberg.net

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


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