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Montevideo, November 25th 2020 - 02:03 UTC

 

 

“If I mess up”, the US dollar could reach 5 Real, admits Brazil's minister Guedes

Friday, March 6th 2020 - 11:00 UTC
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“If I really mess up, it can reach that level” of 5 per dollar, Guedes told journalists. “If I do a lot of things right, it will strengthen.” “If I really mess up, it can reach that level” of 5 per dollar, Guedes told journalists. “If I do a lot of things right, it will strengthen.”

Brazil’s economy minister blamed the Real’s slide to an all-time low on the coronavirus outbreak and said the currency could weaken to as much as 5 per dollar if he “messes up.” Paulo Guedes said the Real is weakening largely due to the economic impact of the epidemic, rather than a change in the country’s risk perception.

The currency fell to a record intraday low of 4.6655 per dollar on Thursday even after the central bank stepped in three times to support it. “If I really mess up, it can reach that level” of 5 per dollar, Guedes told journalists. “If I do a lot of things right, it will strengthen.”

Policy makers sold US$ 3 billion in foreign-exchange swaps on Thursday in three separate auctions. The intervention, however, did little to ease pressure on the currency, which is being dragged down as traders increase bets authorities will reduce borrowing costs following the Federal Reserve’s emergency rate cut.

The Real has repeatedly hit new lows since the beginning of February. The central bank has already sold US$ 7.5 billion in foreign-exchange swaps, but that didn’t prevent the currency from becoming the world’s worst performer this year, down over 13%.

The central bank said in a statement that it’s monitoring the impact of the coronavirus outbreak on financial markets and the wider economy. Markets interpreted the statement as a signal for further rate cuts, sending swap rates and the currency lower.

Brazil’s local swap curve is fully pricing in a quarter-point rate cut at the central bank’s next meeting on March 18, compared with a near zero possibility the prior week. Traders had played down chances of further rate reductions after the central bank suggested in February the easing cycle was over, but resumed bets after the Fed’s move.

The real is down 13.3% this year, the worst start since 1999. It’s underperforming peers due to its diminished carry appeal, given that local rates have dropped to a record 4.25%. Weak growth numbers also weighed on the currency, as well as positioning, since it’s used as a hedge for long positions in stocks and rates.

Categories: Economy, Politics, Brazil.

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