Brazil Current Deficit at 16-Month Low on Profit Remittances

Brazil’s current account deficit narrowed to a 16-month low in September, as spending on services fell and foreign exchange volatility caused companies to slow the pace of profit remittances abroad.

The deficit in the current account, the broadest measure of trade and services, narrowed to $2.2 billion last month, from $4.9 billion in August, the central bank said in a report today in Brasilia. Economists surveyed by Bloomberg had predicted a $3.3 billion gap, according to the median estimate from 21 analysts.

The central bank last month cut its forecast for this year’s current account deficit to $54 billion from $60 billion, as domestic demand slows and the real weakens. The currency has fallen 9.8 percent since the end of August, when the central bank began cutting interest rates in response to a “substantial deterioration” in the global economy. The depreciation was the biggest of seven major Latin American currencies tracked by Bloomberg.

The central bank forecasts a current account deficit of $4.8 billion in October, the central bank’s head of economic research, Tulio Maciel, told reporters in Brasilia.
‘International Jitters’

Remittances of profits and dividends fell to $2 billion in September, from $5.1 billion the previous month. “International jitters” led companies to postpone the repatriation of funds in Brazil and cut the dollar value of profits in reais, said Flavio Serrano, senior economist at Espirito Santo Investment Bank in Sao Paulo, who correctly forecast the current account deficit.

“We saw strong turmoil in international markets, so the external accounts showed some irregular behavior,” Serrano said in a telephone interview. “This is temporary.”

The deficit on services narrowed to $3.1 billion, from $3.4 billion in August. The deficit on foreign travel spending fell to $1.26 billion, from $1.3 billion. Travel spending is sensitive to exchange-rate fluctuations and had been affected by the weaker real, Maciel said.

Brazil’s foreign direct investment increased to $6.3 billion in September from $5.6 billion in August, the central bank said. The figure was higher than the $5 billion median forecast of 16 economists surveyed by Bloomberg. The central bank expects FDI to fall to $4 billion this month, Maciel said.
Futures Contract

The real fell 0.6 percent to 1.7618 per dollar at 12:01 p.m. New York time. The yield on the interest rate futures contract maturing in January 2013 declined one basis point, or 0.01 percentage point, to 10.40 percent.

Imports fell to $20.2 billion, from $22.3 billion in August, after retail sales registered their biggest decline since March 2010, while economic activity contracted the most since the global economic crisis of 2008.

The price of raw materials has fallen 4 percent since the end of August, according to the Standard & Poor’s GSCI Index of commodities.

Policy makers cut the benchmark Selic rate half a point for a second straight policy meeting this month, to 11.5 percent, saying this would protect Brazil from a more “restrictive” world economy.