Brazilian Real Declines to Nine-Year Low Amid Economic Weakness

Paula Sambo – Bloomberg, 12/15/2014

Brazil’s real fell to a nine-year low as a report indicated that Latin America’s largest economy unexpectedly contracted in October, adding to concern that President Dilma Rousseff will struggle to revive growth.

The currency slid 1.2 percent to 2.6872 per dollar at 4:24 p.m. in Sao Paulo, the weakest level on a closing basis since March 2005. Swap rates, a gauge of expectations for changes in borrowing costs, climbed 0.14 percentage point to 12.69 percent on the contract due in January 2017.

The real dropped as the central bank reported today that the seasonally adjusted economic index, a proxy for gross domestic product, fell 0.26 percent in October from a month earlier. That was worse than every estimate from 27 economists surveyed by Bloomberg, whose median forecast was for a 0.25 percent expansion. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, remained the highest among 16 major currencies.

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