Brazil Central Bank Testifies for Further Currency Intrusion
On Wednesday, the Brazilian central bank outraged traders. For the first time, it has prevailed in the foreign exchange market after three months.
The bank has been selling dollars in two shocker auctions to bolster the real after it plunged to a record low.
Moreover, the currency reduced deficits after the second intervention. It was also down 0.3% on the day in New York.
This year, it has weakened as much as 1.2% to a record 4.2765 per dollar. The plunging was after the first auction failing to establish a floor for the currency, which has dropped 9%.
According to a statement, the central bank did not indicate how much it sold.
On the other side, policymakers worry that a shaky real may fuel price surges. This is in a nation with a long history of out-of-control inflation.
In addition, it may have been the driver for the movements, which came just hours when administrators had signaled. They were all comfortable granting markets to set the exchange rate.
Central Bank Battles to Cut Borrowing Costs
Meanwhile, the burden on consumer prices makes it more challenging for the central bank. It is mainly because of cutting the borrowing costs by raising economic growth.
A currency strategist at Credit Suisse in New York, Alvise Marino, stated, “Pretty ironic of the central bank to jump back in the market.” He is also the one who has been bearish on the real since September.
He added, “authorities may have been driven to act by the severity of the recent drop, rather than the specific level. The real is down 5.5% this month.”
Last Monday, Economy Minister Paulo Guedes indicated that an unsteady real isn’t a problem. He also believed that it was in line with comments last week by central bank chief Roberto Campos Neto.
Moreover, President Jair Bolsonaro stated he’d like a tougher real. But he suggested it would postpone it to finance chief last Tuesday morning.
Marino added that even though the intervention might deliver some short-term support, the real has further room to undermine. The real may be affected by the state of the economy and investors’ unease about regional stability.
