Brazil's current account surplus widened to nearly $700 million in June as overseas interest payments tumbled, the central bank said on Monday, while foreign direct investment soared to record highs.
The surplus in the current account balance of payments - the widest measure of a country's trade in goods and services - rose to $696 million from $117 million in May and compared with $632 million in June last year.
Overseas interest payments fell to $560 million in June from $1.2 billion in the same month a year ago as local interest rates fell and perceptions of Brazil's risk improved. That helped offset a narrowing in the country's trade surplus, central bank data showed. Brazil's trade surplus narrowed slightly as a strong local currency encouraged more imports. The surplus slipped to $3.82 billion in June from $3.87 billion in May and $4.10 billion in June 2006.
"The slightly smaller trade surplus ... was offset by lower factor payments," Goldman Sachs analyst Alberto Ramos wrote in a report. In the 12 months through June, the current account surplus was equal to 1.33 percent of gross domestic product compared with 1.34 percent of GDP in the 12 months through May.
June's current account surplus was greater than the $500 million median forecast of 18 economists surveyed by Reuters. The forecasts ranged from $50 million to $960 million.
The current account balance tracks a country's net flow of external transactions, including foreign trade, interest payments and services such as tourism. It is used to gauge a country's dependence on foreign capital.
Brazil's foreign investment, which falls under the capital account of the balance of payments, has surged as falling interest rates and accelerating economic growth led companies to invest in plants and machinery to produce more goods.
Foreign direct investment in Brazil, Latin America's largest country, jumped to $10.32 billion in June, setting a monthly record after dwindling to only $501 million in May. The result was far higher than the $6.5 billion median estimate of 14 analysts in the Reuters survey. The estimates ranged from $2.4 billion to $7 billion.
Analysts said more than half the June FDI stemmed from Arcelor Mittal's buyout of minority shareholders in its Brazil unit. The steelmaker said on June 5 it would pay about $5.41 billion to raise its stake in the Brazil unit from 67.1 percent to 96.6 percent.
From January through June, FDI totalled $20.86 billion compared with $7.39 billion over the first six months of 2006 and $18.78 billion over all of last year. FDI totalled $1.06 billion in June a year ago. Foreign direct investment and the current account surplus are expected to fall in July, although they will remain strong.
FDI should slip to $3.5 billion in July after about $3 billion came in through July 23, said Altamir Lopes, head of economic research at the central bank. The current account surplus for the month should fall to about $100 million. Net foreign portfolio investment in local stocks and bonds jumped to $4.79 billion in June versus a net outflow of $3.98 billion in the same month a year ago.
From January through June, portfolio investment totalled $24.06 billion, more than double a net $9.05 billion for all of 2006. Brazil's benchmark Bovespa stock index has gained nearly 23 percent this year, in part because of the surge in foreign investment.
Brazil's currency, the real, has gained nearly 16 percent in 2007 as investors poured money into stocks and bonds, exporters brought in dollars and banks bet that those trends will continue, adding to the real's gains.
However, the dollar inflows slowed in July and banks reduced bets on further gains in the real, which is currently trading near seven-year highs at about 1.85 to the dollar.
Net dollar inflows to Brazil slipped to $7.11 billion in the first 20 days of July from $12.1 billion over the first 22 days of June, Lopes said. At July 20, banks had trimmed their net short dollar positions, or bets that the dollar will fall, to $5.29 billion from $7.28 billion at the end of June, he added. Net short positions were a record $15.79 billion in May before Brazil tightened rules to slow gains in the real.