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Brazil’s Real Declines as Economists Reduce 2016 GDP Forecast
By Filipe Pacheco 2015-12-14
Brazil’s real (BRL) fell to a six-week low on worsening prospects for the economy as
President Dilma Rousseff fights attempts to impeach her. The real dropped 0.1% to 3.8734
BRL/USD, its lowest level on a closing basis since Oct. 28, after earlier sliding as much as
1.3%.
The real is the worst performer this year among 31 major currencies as Rousseff struggles
to find support for measures to reduce the deficit and avoid additional credit-rating cuts
while her popularity plunges and the economy shrinks. Analysts in the central bank’s
weekly survey expect Brazil’s economy to contract 2.67% in 2016, compared with a
forecast for a 2.31% drop last week.
"The mounting political turmoil is definitely not helping the government to address the
fiscal gap and is even dragging out the potential recovery further with the Brazilian real
expected to remain under pressure," said Arnaud Masset, an analyst at Swissquote Bank
SA in Gland, Switzerland.
Brazilians returned to the streets in nationwide protests on Sunday against Rousseff’s
government as impeachment proceedings progress in Congress. Turnout at the
demonstrations was smaller than in previous mass protests in August and March.
Moody’s Investors Service last week put the country’s Baa3 rating on review for a
downgrade citing the challenges Rousseff’s government faces in shoring up fiscal accounts
while a corruption scandal has Congress in gridlock. The ratings company said that a
turnaround next year appears unlikely.
A second cut to junk could trigger a selloff of Brazilian assets by some institutional
investors whose bylaws prevent them from holding such securities. Standard & Poor’s
stripped Brazil of investment-grade status in September.
Economists in the central bank survey expect policy makers to increase the benchmark rate
to at least 14.5% next year, compared with the previous week’s forecast of 14.25%.
Swap rates on the contract maturing in January 2017, a gauge of expectations for changes
in Brazil’s interest rates, rose 0.06 percentage point to 16.05 percent.
Inflation Report
Inflation pressures had most likely remained strong in November. According to the latest
survey, economists expect inflation to have accelerated to an annualized 10.42% in
November compared to 9.93% in October. However, as reported by the latest BCB’s
weekly economist survey, price levels are anticipated to reach 10.44% by year-end, before
easing to 6.70% by the end of next year.