Bolsonaro wants to see a stronger real


Brazil’s currency has tumbled on the back of a combination of domestic and international factors
Chief Investment Office22 Nov 2019
    Photo credit: AFP Photo


    CURRENCIES

    Brazil President Jair Bolsonaro said he would like to see a stronger local currency against the US dollar, as it currently hovers close to an all-time low.

    “I would like the dollar below four reais, but it’s not merely a question of domestic issues,” Bolsonaro told reporters in Brasilia on Wednesday (21 November). “There’s US and China trade and the issue is that the whole world is interconnected. Any problem abroad has consequences for the entire world, not just here.”

    Bolsonaro’s comments mark the first time he has weighed in publicly on the currency as it tumbles on the back of a combination of domestic and international factors. A local oil action flopped earlier this month, frustrating expectations of massive capital inflows that could have propped up the real. Meanwhile, a recent selloff in Emerging Markets peers – such as the Chilean peso – as well as global trade tensions are also hitting the exchange rate.

    The currency drop comes at a crucial moment for Brazil’s central bank, which has cut the benchmark interest rate to a record low of 5% to help boost lacklustre economic growth. Still, the weaker real has prompted investors to pare bets of even more aggressive easing, as it has the potential to fan inflation by making imports more expensive.

    Speaking before a congressional hearing on Wednesday, central bank President Roberto Campos Neto said the country’s risk perception has improved even as the currency has weakened. He attributed part of the real’s tumble to international drivers including global dollar strength, as well as local issues including the November oil auction.

    Campos Neto said it is important to monitor how the exchange rate influences inflation going forward. The central bank could use its monetary policy if consumer price expectations are affected. Bolsonaro and his economic team are working to implement a pro-market agenda, including a pension reform and planned privatisations of state-controlled assets. Analysts surveyed by the central bank have lifted 2020 growth expectations to 2.17%. – Bloomberg News.

    The US Dollar Index (DXY) traded 0.06% higher to 97.993 on Thursday. The pound slipped 0.08% to USD1.2914, the euro fell 0.13% to USD1.1059, and the yen weakened 0.02% at 108.63 per dollar.

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