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Brazil cenbank intervenes in FX as real slide deepens, down 7% this year

EconomyFeb 26, 2021 03:20PM ET
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© Reuters. FILE PHOTO: 200 reais note are seen after Brazil's Central Bank issues the new note in Brasilia

By Jamie McGeever

BRASILIA (Reuters) - Brazil's central bank twice waded into the spot currency market on Friday, selling a total of $1.545 billion as the real slid further against the dollar to cement its status as one of the world's worst performing currencies this year.

The central bank's action brought its total intervention over the past 24 hours to $3.08 billion, following two spot dollar sales on Thursday, the first this year. [L1N2KV2T2]

Traders said Brazilian markets had suffered in a global move to reduce risk exposure against a backdrop of surging bond yields, and that the central bank's action was simply aimed at meeting strong demand for dollars.

The real traded through 5.60 per dollar for the first time in almost four months, bringing its year-to-date losses to more than 7%.

Aside from the Libyan dinar and Sudanese pound, which have both suffered huge one-off devaluations, the real is the biggest decliner against the dollar so far this year, according to 152 currencies tracked by Refinitiv.

"There was apparently a lack of spot liquidity, a scarcity of (dollar) sellers yesterday and today," said Cleber Alessie Machado, head of financial derivatives at Commcor DTVM in Sao Paulo.

"The central bank is sitting on hundreds of billions of dollars of reserves, so it has room to sell. I don't think there is anything particularly deep behind its actions," he said.

The real has failed to gain any tangible support from the growing belief that Brazilian interest rates will start rising soon.

Economists at Rabobank and Morgan Stanley (NYSE:MS) were the latest to revise up their calls, to a 50 basis point hike, at the central bank's March 17-18 policy meeting.

Morgan Stanley now sees the benchmark Selic rate ending this year at 4.25%, up from 3.50% previously. It has been at a record low 2.00% since August.

Meanwhile analysts at Rabobank raised their year-end dollar/real forecast to 5.15 from 5.05, and their end-2022 call to 5.05 from 4.95.

Brazil cenbank intervenes in FX as real slide deepens, down 7% this year
 

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