Real’s relentless decline continued on Thursday, falling below 4.50 per dollar for the first time ever. The Brazilian currency ended trading at new closing low of 4.4750 per dollar, meaning it has depreciated by more than 10% in just two months. Brazil’s central bank dipped into the currency derivatives market on Thursday for the fourth time this month, selling $1 billion of swaps contracts following Wednesday’s $500 million sale to slow or even reverse the real’s fall. Any relief from its interventions this month has so far proven fleeting.
Brazil’s government is trying to fight off a move by some lawmakers to grant the central bank autonomy and force it to target growth as well as inflation. Opposition lower house deputies plan to present an amendment to the autonomy bill that would set an additional target for the central bank – either employment or growth level – alongside its mandate to keep prices stable. The autonomy bill is ready to be put to a vote in the lower house. Unlike regional peers like Chile and Mexico, the central bank in Brazil doesn’t have formal autonomy from the government. Its head is named by the president and has a similar rank to cabinet ministers.
Brazil central bank board lowered the Selic rate to 4.25%, and intends to hold interest rates going forward after five consecutive rate cuts totalling 2.25 percentage points.The economy ministry expects gross domestic product to expand 2.4% in 2020. Annual inflation stood at 4.34% in mid-January, but the real’s performance, the second worst among emerging market currencies so far this year, could fuel price increases by making imports more expensive.
The Broad Consumer Price Index (IPCA) forecast fell from 3.47% last week to 3.40% today in the last Focus Bulletin released by Brazil Central Bank on Monday. For 2021, the rate was maintained at 3.75%. Focus also revised down the estimate for the Gross Domestic Product (GDP) from 2.31% to 2.30%. From 2021 to 2023, it was kept at 2.50%. The exchange rate projection was also maintained at R$4.10 at the end of 2020.
Brazil’s external accounts registered a deficit of $ 50.7 billion, the worst result in the last four years, according to information published by the Central Bank. The report says that the result was caused by the trade balance, which in 2019 was $ 13.6 billion below the amount recorded in the previous year. Brazil’s trade surplus decreased from $ 53 billion in 2018 to $ 39.4 billion in 2019, reflecting retractions of 6, 3% in exports and 0.8% in imports.
The outflow of dollars from the Brazilian economy exceeded its inflow by $44.77 (R$180) billion in 2019, the Central Bank (BC) reported. This is the largest net foreign exchange withdrawal since the start of the historical series in 1982. The previous record for net withdrawals had been recorded in 1999 when foreign exchange flow had turned negative at US$16.18 billion.