Carry-trade flows to climb
Friday, 8 January 2010
SAO PAULO, Jan 7 (Bloomberg): Carry-trade investment flows into Brazil will climb this year as traders tap into central bank rate increases that will likely send benchmark borrowing costs above 10 per cent, according to Standard Chartered Plc.
Carry trades, in which investors buy higher-yielding assets with money borrowed in nations with lower rates, will pick up as Brazil lifts the overnight interbank target from a record low of 8.75 per cent to stem inflation as the economy rebounds, said Mike Moran, a senior currency strategist at Standard Chartered.
Moran, one of the most accurate forecasters in a survey of the real's world-beating rally last year, predicts these flows will help the real advance to an 11-year high of 1.55 per dollar by year-end from 1.7310 yesterday.
That contrasts with the 1.75-per-dollar year-end call from BNP Paribas SA, the best Brazil real predictor last year among forecasts made at the end of 2008.
"We see stronger growth and higher rates boosting carry trades," Moran said in a telephone interview from New York.
The real surged 33 per cent last year to 1.7445, more than all other major currencies, as Latin America's biggest economy was one of the first to recover from the global recession. In January 2009, when the real traded as weak as 2.3996, Standard Chartered forecast it would end the year at 1.9 per dollar. The median year-end forecast at the time in the Bloomberg survey was 2.24 per dollar.
Standard Chartered's 11.5 per cent benchmark interest-rate forecast for the end of this year is the highest in a survey of 13 banks. The median estimate is 10.5 per cent.
Carry trades, in which investors buy higher-yielding assets with money borrowed in nations with lower rates, will pick up as Brazil lifts the overnight interbank target from a record low of 8.75 per cent to stem inflation as the economy rebounds, said Mike Moran, a senior currency strategist at Standard Chartered.
Moran, one of the most accurate forecasters in a survey of the real's world-beating rally last year, predicts these flows will help the real advance to an 11-year high of 1.55 per dollar by year-end from 1.7310 yesterday.
That contrasts with the 1.75-per-dollar year-end call from BNP Paribas SA, the best Brazil real predictor last year among forecasts made at the end of 2008.
"We see stronger growth and higher rates boosting carry trades," Moran said in a telephone interview from New York.
The real surged 33 per cent last year to 1.7445, more than all other major currencies, as Latin America's biggest economy was one of the first to recover from the global recession. In January 2009, when the real traded as weak as 2.3996, Standard Chartered forecast it would end the year at 1.9 per dollar. The median year-end forecast at the time in the Bloomberg survey was 2.24 per dollar.
Standard Chartered's 11.5 per cent benchmark interest-rate forecast for the end of this year is the highest in a survey of 13 banks. The median estimate is 10.5 per cent.