BRASILIA (Reuters) - The outlook of the Brazilian real looks highly uncertain ahead of the October presidential election, in a challenging time for Latin American currencies in general as the United States sets the stage for higher interest rates.
Forecasts for the Brazilian currency were all over the board in a monthly Reuters poll, with strategists and analysts weighing potential policy changes after a presidential election that has been too close to call.
The median estimates of 25 analysts polled by Reuters suggest the real would remain around its current levels, between 2.40 and 2.50 per dollar, for the next 12 months. It closed at 2.45 per dollar on Tuesday, recovering slightly from the day before, when it hit its weakest level since the depths of the 2008 global financial crisis.
But the forecasts were spread across a much wider area than a month ago, in a sign that the median estimates in the poll may be just the midpoint of radically different scenarios being considered as President Dilma Rousseff and her opponents, Marina Silva and Aecio Neves, face off in a first-round vote on Sunday.
"If good policies are adopted after the elections, the real could strengthen back to 2.20-2.25," said Luiz Otavio de Souza Leal, chief economist at Banco ABC Brasil, in Sao Paulo. "If not, it can easily drift towards 2.70 or even 2.80 in the short run, from end-October to the end of the year."
The worst scenario in the poll projects the real at 2.90 per dollar in a year, which would be the weakest since 2004. The most optimistic view puts it at 2.27.
Elsewhere in Latin America, the Mexican peso looks set to benefit from the recovery in the U.S. economy and will probably outshine other currencies in the region.
The Colombian peso may remain steady, while the Chilean peso could weaken to reflect a sluggish economy, the poll showed.
The real had its worst month in three years in September, losing nearly 9 percent and underperforming its regional peers as polls showed greater chances of Rousseff winning re-election. Since she is not expected to win more than 50 percent of votes in the first round, uncertainty will probably linger until a second-round vote on Oct. 26.
Most investors favor opposition candidates Silva and Neves, who promise less state intervention in the economy. But analysts have said that whoever wins, even Rousseff, will probably take measures to shore up public finances and restore business confidence as ratings agencies threaten to downgrade the country's debt.
"Market will probably calm down a little bit after the election as the next administration tries to make the outlook more predictable," said Jankiel Santos, chief economist at Espirito Santo Investment Bank in Sao Paulo. The central bank will probably continue to intervene in the currency market to reduce volatility, Santos added.
A big risk to all Latin American currencies is U.S. monetary policy, as prospects of higher interest rates there next year have boosted the dollar worldwide.
"Rate increases usually cause bouts of risk aversion and capital outflows in Latin America," said analyst Eduardo Bolanos of Colombian insurance company Positiva in Bogota.
According to the median forecast in the poll, the Colombian peso is expected to trade at 2050.00 per dollar in 12 months, compared with 2024.90 on Tuesday.
The Mexican peso is seen gaining to 13.1150 per dollar in one year from 13.4245 on Tuesday, while the poll shows the Chilean peso weakening to 617.50 per dollar from 597.80 and the Peruvian sol slipping to 2.975 per dollar from 2.886.
Reporting by Silvio Cascione; Additional reporting by Nelson Bocanegra in Bogota, Jean Luis Arce in Mexico City, Ursula Scollo in Lima and Anthony Esposito in Santiago; Editing by Lisa Von Ahn