Santander Economico sees the Brazilian real ending weaker this year and next than it had previously expected, due to the global economic downturn, Brazilian government intervention in the currency market, and the ongoing euro-zone crisis
The bank said it sees the real ending 2012 and 2013 at BRL1.95 per dollar, compared with its previous forecast of BRL1.80 for both years
Santander said it's assuming a slight decrease in commodities prices and additional dollar strengthening, "albeit with a gradually healthier external environment from the end of 2012 onward."
Santander said the world economy will continue to weigh on commodity prices, increase risk aversion and strengthen the dollar
"These movements have contributed to a depreciated [Brazilian real] in the past few weeks and will likely persist in the near future."
Over the last year, the impact of the government's intervention in the currency market has become much more statistically significant, the bank said. Government intervention has greatest impact at times when global risk aversion is high, it said
The bank said that markets are struggling to comprehend some of the global events, such as the political uncertainties in Europe, and this "noise" effect has weakened the real against the dollar by 10 to 15 cents
Several major events in coming months could contribute to that volatility, including elections in Greece by mid-June and in the Netherlands by mid-September, and the expiration of the tax cuts in the U.S. by late 2012, it said
Under more pessimistic assumptions, the real could reach 2.20 to the dollar, if commodity prices fall 10% and the "noise" effect reaches 17 cents, the same level reached in the 2008 international crisis post-Lehman
Should the more pessimistic scenario arise, it's possible that the Brazilian government would withdraw some of the measures adopted earlier this year to weaken the currency, it said
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