Brazilian Currency Hits Nine-Year Low

Brazil’s real fell to a nine-year low on Tuesday, with the economy showing all signs of slipping back into the recession. Although Brazil was in recession technically in …

Brazil’s real fell to a nine-year low on Tuesday, with the economy showing all signs of slipping back into the recession. Although Brazil was in recession technically in the first four months of this year, its GDP grew more than expected in the third quarter.

But the central bank report released Tuesday indicated sudden drop in economic output, forcing speculators to sell the currency.

The fall in real’s value may surprise analysts, because they had blamed the country’s economic problem on rising inflation and high fuel prices. But the large decrease in fuel prices in the international market should have helped the government reign in inflation.

Brazil has raised its benchmark interest rate 11 times since April of last year, from a record low of 7.25% to 11.75% now. Weak manufacturing figures from China, Russia’s economic uncertainty and reports that US might raise interest rates are also the factors hurting Brazil’s currency.

Brazil’s trade deficit has widened drastically in the past few months, with prices of iron ore decreasing by 40 percent. Argentina’s economic crisis has also dealt a blow, particularly to its auto-exporting sector. Argentina is Brazil’s third biggest export market after the United States and China.

President Dilma Rousseff has named Joaquim Levy as new finance minister, promising to impose more rigorous fiscal discipline. But the weak international market leaves little room for Levy to drive the Latin America’s biggest economy out of recession.

Sign up for our Nearshore Americas newsletter:

In September, Moody’s Investors Service changed Brazil’s outlook to negative, saying that sentiment among consumers and investors had worsened significantly in the past three years and the economy’s consumer-led growth had reached the point of exhaustion.

Tags