Brazil’s Currency Extends Biggest Quarterly Decline Since 2002

Brazil’s Currency Extends Biggest Quarterly Decline Since 2002

By Paula Sambo

10:34 AM BRT
March 30, 2015

(Bloomberg) — Brazil’s real extended its biggest quarterly decline since 2002 amid concern that comments from Finance Minister Joaquim Levy reported over the weekend will make it harder for the government to rein in deficits and preserve the nation’s investment-grade status.

The currency approached a 12-year low after Folha de S. Paulo newspaper reported Saturday that Levy told fellow University of Chicago alumni at an event in Sao Paulo on March 24 that though President Dilma Rousseff has a “genuine desire to get things right,” her methods are sometimes not the “most effective way.” Investors are concerned the remarks could reflect disagreements within the government, according to Luciano Copi, a trader at Correparti Corretora de Cambio.

“Levy’s comments will enhance tensions,” Copi said in an e-mailed note to clients. “It will not be surprising if the real weakens to close to 3.30 per dollar or even declines beyond that mark.”

The real fell 0.4 percent to 3.2622 per dollar at 10:25 a.m. in Sao Paulo, extending its drop since the end of December to 19 percent, the biggest since the third quarter of 2002.

The Finance Ministry later said the remarks to alumni were made during an informal conversation and it disagrees with the interpretation of his comments.

Stalled growth, record budget deficits and allegations of corruption at the state-controlled oil company have made the real the worst performing emerging-market currency this year. Also weighing on the real is speculation that the U.S. Federal Reserve will raise interest rates later this year, damping demand for higher-yielding assets from emerging markets.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s borrowing costs, increased 0.12 percentage point to 13.65 percent Monday.

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