RIO DE JANEIRO, BRAZIL – Brazil is the country with the largest devaluation of the dollar in 2022, according to the financial information company Economatica. The North American currency closed Wednesday, February 9, quoted at R$5.22, and accumulates a fall of 6.2% in the year.
Following Brazil, the countries where the dollar depreciated the most were
- South Africa: – 4.55%
- Peru: – 3.40%
- Chile: – 3.05%
- Colombia: – 1.49%
- Denmark: – 0.85%
- Canada: – 0.62%
- European Union: – 0.33%
According to economists, two main factors explain this movement of the dollar against the real: the new commodities boom, raw materials of which Brazil is a major exporter; and the substantial increase in the economy’s basic interest rate, the Selic, which reached 10.75% in the last meeting of the Central Bank’s Monetary Policy Committee (Copom).
COMMODITIES BOOM
In the last 12 months, commodities such as oil (75.8%), corn (57.5%), soybeans (39.1%), and iron ore (38.7%) accumulated strong growth in international markets.
Prices are being driven by higher global demand amid the post-pandemic economic recovery.
The increase in exports causes more dollars to enter Brazil, reducing the price of the American currency.
This scenario also contributes to the inflow of foreign capital in the Brazilian stock market, which has a third of its shares linked to the commodities sector.
In January, this flow totaled R$32.5 billion, according to B3 (Stock Exchange), more than double the amount observed in December 2021 (R$14.5 billion).
INTEREST RATES
The high Selic rate has been attracting foreigners to fixed-income investments. After Copom’s last decision, Brazil once again has the highest real interest rate (discounting inflation) in the world. And the Central Bank has already signaled at least one more rate hike, in the next meeting, in March.
The high Selic rate raises the interest paid on fixed-income investments, which increases the external demand for these securities. With this, more dollars enter the country.
UP AND DOWN THROUGHOUT THE YEAR
However, experts in the area warn that the exchange rate will be marked by a lot of volatility in 2022 – amid fiscal and electoral uncertainties.
“The price of commodities should continue at an adequate level. And remembering that Brazil is one of the few countries with adequate reserves. So, rising interest rates, commodities, and reserves at the right level: there is no reason why we shouldn’t see the Real appreciate throughout this year,” explained André Perfeito, chief economist at Necton Investimento.
“Obviously, this process of appreciation of the Real will not be without turmoil, without storms. We are going to have a cumbersome presidential electoral process throughout 2022. There will still be a lot of water under the bridge,” he added.
For Rachel Sá, chief economist at the consultancy Rico, the Real will oscillate throughout the year, mainly due to the fiscal uncertainties in the country. It should close the year above R$5.50.
“All these political and mainly fiscal uncertainties are priced into the real. We expect that, despite this appreciation at the beginning of the year, throughout the year, this uncertainty will speak louder again, create a lot of volatility, and the dollar will be closer to R$5.50 up than to R$5.50 down,” he said.