MercoPress. South Atlantic News Agency

A 50 billion USD package to support Brazilian currency

Brazil's central bank said Wednesday it would pump the equivalent of 50 billion US dollars into currency markets to stem a two-month tumble in the Real that is threatening companies and stoked inflation.

Authorities said the injection will be in the form of contracts that will allow investors to protect against further declines in the Brazilian currency. Earlier in the day the Finance Ministry announced that it had scrapped a key tax that foreigners pay on financial market transactions. Following the Central bank's decision the Real surged against the US dollar after earlier falling by about 6% to three-year lows past the 2.5 level. The Real has lost 31% from a nine-year high of 1.5545 reached on August first, as the global crisis has driven down prices on the country's commodity exports and eroded demand for higher- yielding, emerging-market assets. Brazilian prices as measured by the IGP-10 index of wholesale, consumer and construction costs rose 0.78% in the month ended to October 10 after declining 0.42% the previous month. Brazil's main stock market index Bovespa rebounded Thursday from early losses trading up 0.38% to 35,203.38. On Wednesday the index had plunged more than 10% and trading was suspended automatically when it fell more than 10%. Earlier in the week Brazil allowed its two largest state-run banks to buy stakes in financial firms, some of which it says could be facing difficulties from the drying up of credit in domestic markets. The government also increased credit lines to farm and construction industries. The Finance Ministry said it had eliminated a tax known as the IOF which was 1.5% on currency exchange for inflows of foreign capital and 0.38%on foreign currency loans. Later, the Central bank held two auctions of dollar swap contracts worth a total of 2.27 billion USD. It said it was ready to expand its sales of such contracts to 50 billion USD, prompting the Real rebound.