Brazil's currency will face a less stormy year than last but only begin to pick up lost ground to the dollar in the second half of 2009 on signs of an economic recovery, a Reuters poll showed. The Brazilian real may even be in for further losses in the first half as the economy stalls after years of speedy growth and the central bank steps in with interest rate cuts to prop it up.
According to a poll of 37 analysts in Brazil, the United States and Europe the real will weaken slightly to trade at 2.35 per dollar by the end of the first quarter, nudging up to 2.30 by the end of June. It crashed in the late part of last year as global markets tumbled after the collapse of Lehman Brothers, losing around a third of its value from a nine-year high at 1.55 in early August.
Only once signs of some stabilisation occurs in the economy, badly hit by the global recession, will the real be able to regain some of its losses. "We expect the currency to trade around current levels for some months and in the second half we expect a slight appreciation of the real to the dollar reflecting a recovery of capital inflows and some gains in commodity prices," said Flavio Serrano at BES Investimento do Brasil.
The bank's monetary policy committee, known as Copom, surprised markets last week with a 100 basis point cut, taking rates to 12.75 percent. It said on Thursday that interest rates could be cut further as inflation falls, which would hurt the real more.
Yet the poll found the currency is set to edge higher, creeping up to 2.21 by the end of the year and 2.13 at the beginning of 2010. On Monday ratings agency Fitch warned Latin American central banks that they must resist the temptation to cut rates too far even as inflation falls. Appreciating currencies in recent years had helped control inflation, but now the reverse could happen.
The poll also showed a great degree of uncertainty over the path of the real. Forecasts were between 2.05 to 2.68 per dollar by the end of March and from 1.90 to 2.70 per dollar at the end of the year. But out of a sample of 15 analysts, 12 said that a weak currency was welcome as it will help exporters, which have been key to growth in recent years.
The central bank on Thursday acknowledged the sharp slowdown in the economy and said the outlook had "deteriorated substantially" since December. Analysts in a central bank survey expect Brazil will grow just 2 percent in 2009, way below the 5.6 percent growth forecast for 2008.
But analysts in the Reuters survey were convinced that the central bank will step in to make sure the real does not fall sharply. Seven of 15 said the best way to avoid a slump would be for the bank to introduce measures to attract foreign capital inflows, while seven said it should sell more dollars from its reserves.
"The best way to avoid an excessive depreciation in the currency would be to attract foreign investment to the country," said Paulo Mateus at Barclays Capital. "This would be possible through responsible economic policies like controlling inflation and fiscal prudence."