By Lise Alves, Senior Contributing Reporter
SÃO PAULO, BRAZIL – Brazil’s currency, the real, fell to its weakest level against the U.S. dollar since 2005 in February this year and according to an international economic consultancy group the reason is not the current corruption scandals at oil giant Petrobras, but deteriorating economic fundamentals.
According to Capital Economics’ Latin American Market Monitor report for February, the Brazilian real depreciated by nearly seven percent in February but only part of this depreciation can be attributed to the on-going corruption scandal at state-owned oil company, Petrobras and the downgrade suffered by the oil giant by credit rating agency Moody’s.
“We think that the further weakening of the Brazilian real has had more to do with the deteriorating economic outlook and fears that FX intervention may soon be scaled back,” stated the monthly report.
According to Capital Economics, Finance Minister Joaquim Levy indicated at the beginning of February that policymakers wouldn’t keep the real “artificially strong” in the face of market pressure. According to the consultancy the latest economic data has gone from bad to worse, while the economy’s terms of trade have continued to deteriorate.
Economic news coming out of Brazil in the past few weeks have not been good, corroborating to the consultancy’s gloomy outlook for Brazil this year. January’s labor data shows that the economy lost over 81,000 jobs during the first month of 2015, raising doubts as to how the once strong labor market will react to the country’s latest economic woes.
Economists surveyed by Brazil’s Central Bank on Friday (February 27th) forecast that the IPCA (Consumer Price Index) would rise by 7.47 percent in 2015, surpassing the inflation target of 6.5 percent. These same economists estimate that the U.S. dollar/Brazilian real foreign exchange rate will close the year at R$2.90/US$, the country’s GDP will register a retraction of 0.58 percent and industrial production will register a retraction of more than 0.70 percent this year.