By Jamie McGee and Adriana Brasileiro
Oct. 31 (Bloomberg) -- Brazil's real posted its third consecutive monthly decline, the longest stretch of losses in six years, on speculation the global economic slowdown will reduce demand for emerging-market products and assets.
Commodities, which account for two-thirds of Brazil's exports, had their worst month since at least 1956 on concern that a slump in global economic growth will sap demand for raw materials. Brazil's Bovespa index of stocks plunged 25 percent in October.
``All the countries that were growing and were to some extent based on commodities will face a significant slowdown next year,'' said Pedro Tuesta, an economist in New York at research firm 4Cast Inc. in New York. ``That puts more pressure on the current account and therefore on the currencies.''
The real dropped 2.5 percent to 2.1590 per dollar today, from 2.1050 yesterday. The currency dropped 12 percent in October. The last time the real fell three straight months was in 2002.
The Federal Reserve agreed this week to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to revive global bank lending. The International Monetary Fund approved an emergency loan program that almost doubles borrowing limits for developing countries and waives demands for economic austerity measures.
``The Fed acknowledged Brazil is systemically important for the whole system,'' said Bartosz Pawlowski, a strategist in London at TD Securities Ltd. ``Such an assurance should help the real. As of yet, it's not enough to completely reverse the situation.'' The real will not appreciate beyond 2 against the dollar until 2009, he said.
Currency Swaps
Banco Central do Brasil has announced measures to unlock credit markets, such as imposing a limit of 30 percent on the amount of time-deposit reserves banks can use to buy government bonds. The move is aimed at boosting purchases of loan portfolios from faltering lenders. The government also freed more funds for farm lending.
The central bank has also offered currency swaps daily to add liquidity to the local currency market and bought reais through repurchase agreements. The bank placed 8,950 currency swap contracts of 57,500 offered at two auctions today to help shore up the real.
Brazilian stocks fell today after banks and retailers missed analysts' profit estimates and commodity producers dropped. The Bovespa index dropped 0.7 percent, deepening its monthly decline.
Emerging Market Risk
``Most investors are not yet ready to recommit to emerging- market risk,'' wrote Nick Chamie, global head of emerging- markets research in Toronto at RBC Capital Markets, in a research note today.
The Reuters/Jefferies CRB Index of 19 raw materials has plunged 22 percent this month, the steepest decline in at least a half-century. Brazil is the world's biggest exporter of beef, orange juice, sugar and coffee.
The cost of borrowing dollars for three months in London fell today, capping the first monthly decline since May, after central banks provided cash and cut interest rates to unlock the supply of credit.
``The recent falling of global money markets will reduce pressure on some emerging-market currencies, especially Brazil, which has strong fundamentals,'' Pawlowski said.
The yield on Brazil's zero-coupon bond due in January 2010 rose 9 basis points, or 0.09 percentage point, to 15.71 percent, according to Banco Votorantim. The yield on Brazil's overnight futures contract for January 2009 delivery fell 7 basis points to 13.76 percent.
To contact the reporters on this story: Jamie McGee in New York at jmcgee8@bloomberg.net; Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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