Central Bank Mediates Twice as Brazil Real Faces Record Low

Recently, Brazilian policymakers indicated they would intervene further in the Brazil Central Bank if they need to stabilize the foreign exchange market.

The information was according to central bank chief Roberto Campos Neto.

Last Tuesday, the monetary authority sold dollars on the spot market twice. The selling was when the real began to be weakened to an unprecedented low.

Moreover, the following comment from Economy Minister Paulo Guedes about an unsteady currency is not an issue.

In an event in Brasilia, Campos Neto indicated that the foreign exchange market was “dysfunctional” when the central bank agreed to intervene. He emphasized that the bank’s activities do not change the long-term trend of the currency.

He added that Brazil is “well prepared” to face instability. This is with vast foreign reserves and highlighted the split between monetary policy and currency.

So far this year, the real has declined by nearly 9%. It was after the central bank lowers its benchmark interest rate to an all-time low.

Currently, the bank has been reducing the appeal of assets denominated in local currency.

No Indication of Declining Currency

In another speech in the U.S. capital event last Tuesday, Guedes made no indication of the currency’s drop. He also suggested it was not a significant concern.

The matter corresponded with the real hit of a fresh low. It was followed by the central bank’s second dollar public sale of at least $1 million.

Analyst of JP Morgan stated, “This need for intervention partly responds to a self-inflicted wound … following statements from Economy Minister Paulo Guedes.”

Elsewhere, Brazil’s real has been one of the worst-performing currencies in the emerging market this year.

It was also one of the major losers versus the dollar on Tuesday among emerging market currencies. Most of the other currencies were also softer.

The central bank has slashed its benchmark Selic rate by 150 basis points to a record-low 5.00%.

Campos Neto, on Tuesday, repeated the central bank’s new line that another 50-bps cut is likely.

This month, the Brazilian currency’s weakening accelerated after foreign bidders successfully failed to show up at a “mega” oil auction. This means inflows into Brazil will be billions of dollars softer than officials and traders had banked on.