World News

Brazil real to fall to 4.50 per dollar? Capital Economics thinks so

BRASILIA (Reuters) – Brazil’s currency will fall to a new low of 4.50 per dollar this year, Capital Economics forecast on Friday, predicting slower growth, lower interest rates and worse balance of payments dynamics than the current market consensus.

One of the most gloomy outlooks to date for the real, it assumes renewed selling pressure will knock away any support the currency gets from the central bank’s intervention in the swaps market this week.

The last Reuters poll published on Feb. 5 projected the real at 4.00 per dollar in 12 months time, and the latest weekly central bank ‘FOCUS’ survey of economists put it at 4.10 per dollar at the end of this year.

On Friday it was trading around 4.31 per dollar <BRBY>.

“We see little to justify the consensus view that the real will end the year much stronger,” Capital Economics chief emerging market economist William Jackson wrote in a note explaining the change in his year-end call to 4.50 per dollar from 4.25.

“In the short term, the real could recover much more lost ground if fears about the coronavirus ease and commodity prices rise. But we think the currency will, ultimately, weaken over the rest of the year,” he said.

Jackson expects Brazil’s economy will expand by 1.5% this year, against government, central bank and market consensus forecasts comfortably above 2.0%. Demand remains weak, even this long after the 2015-16 recession, he said.

The real fell as low as 4.38 per dollar <BRBY> this week, prompting the central bank into its first currency intervention for three months, and its first swaps market intervention for 18 months.

The real roared back to 4.30 per dollar on Friday, chalking up its biggest gain since mid-December.

(Reporting by Jamie McGeever; Editing by David Gregorio)