Brazil’s Central Bank Burns Through $17 Billion to Prop Up Real
Brazil’s central bank has been actively using its reserves to strengthen the real, disbursing $17 billion in recent days. Over the past days, the bank has intervened nearly every day, conducting auctions worth $8 billion.
Today’s actions included a $3 billion spot auction, bringing the total expenditure to defend the Brazilian currency to $30 billion since December 12, according to unconfirmed estimates.
The Brazilian markets bounced back at week’s end amid extraordinary measures by the central bank. These actions aimed to halt a massive currency sell-off that was spreading through the country’s markets.
On Friday, the real gained up to 1.4%, cutting weekly losses. This came after authorities announced plans for another intervention. They promised a cash sale and a credit line auction, totaling $7 billion combined.
The central bank‘s interventions have been relentless. On Thursday alone, they sold $8 billion in consecutive cash auctions. This marks the largest daily dollar sale since at least 1999.
Despite these efforts, the real has still plummeted 20% this year. It now holds the dubious honor of being the world’s worst-performing major currency.
Brazil’s Economic Crisis
Investors have been rushing to offload Brazilian assets. Growing concerns about the country’s worsening fiscal outlook have fueled this exodus. The selling wave that sent the real to a record low this week didn’t stop there.
It spread to other asset classes, from stocks to local currency debt and dollar bonds. Traders even hoarded funds to hedge against a sovereign default.
Patrick Esteruelas, head of research at Emso Asset Management, offered his insight. He said, “The lack of fiscal credibility is the original sin of the current market downturn in Brazil.”
Esteruelas added, “It seems hard to catch this falling knife until fiscal policy is anchored, growth cools, or the market starts to think about a change in leadership.”
Brazil’s annual budget deficit stands at a whopping 10%. This far exceeds the deficits recorded during President Luiz Inácio Lula da Silva’s first leftist government.
This week, Congress voted on a spending cut package. However, changes may reduce its impact on public accounts. The central bank’s interventions continue, but the real’s future remains uncertain.
More: Brazil news in English, every day from The Rio Times.
This article was produced by The Rio Times’ automated AI newsroom. Editorial responsibility: Matthias Camenzind, Publisher and Editor-in-Chief. The Rio Times also runs Ask Rio Times, which answers from 100,000+ of our own articles, the daily Latin America Power Map, and prediction-market odds on elections and markets.. How we use AI · Report an error
LatAm Markets: Live Signals → — real-time movers, turnover leaders and FX across Latin America.
Brazil runoff, Sunday, October 25: Brazil runoff start time and results schedule. Latest: Brazil runoff polls, Flávio 51%, Lula 49%.