Real, the major currency of Brazil has touched a figure that’s the lowest in last 4 years, thereby prompting the Central Bank of Brazil to intervene for the 2nd day in an attempt to stem the rout in the exchange rate. Incidentally, the swap rates surged ahead on concern that the weakening of currency will be causing the inflation to speed up. On today, Real appreciated at the beginning, incidentally for the first time in the last 6 days. Real went ahead by 0.3% and was priced at 2.1406 per USD, however, then it experienced a decline of 0.9% and went down to 2.1656, marking the weakest intraday since May, 2009. On the other hand, the swap rates due in January, 2016 went ahead by 12 basis points, taking it to 10.05%. The benchmark stock gauge of Brazil, Ibovespa went down by 1.9%, thereby approaching a bear market.
The economy of Brazil is definitely not looking very promising and there were hints that both Japan and US will be limiting the monetary stimulus program as well. All of these combined had an adverse effect on Real. Dilma Rousseff, the President of Brazil is going to the meet the Finance Minister Guido Mantega as the 2-month selloff in Real is threatening to push the import prices up. This is also adding to the inflation rate which is already at the target range of the policy makers’ upper end.
According to the Strategist of Bank of Nova Scotia, Eduardo Suarez, it will definitely be quite tough to stop the decline of Real completely. Investors are currently shifting from the very heavy-handed positions in the emerging markets or at least they are hedging them, as added by Suarez. The view on Brazil is not that constructive anymore among the investors, thereby adding to the woes of Brazil.
The outlook on BBB rating of Brazil was lowered by the Standard & Poor to negative on last week as they are concerned over the weakening fiscal accounts and the sluggish growth of Brazil. On the other hand, the AA+ credit rating of US was increased to stable by Standard & Poor as they see the fiscal risk to be receding. Real’s 3-month volatility has jumped to 14%, marking its highest value since July, 2012 and it is only trailing behind South African Rand and Mexican Peso.