However, the president of Brazil’s central bank, Alexandre Tombini has made an announcement indicating that Brazil may use its reserves to boost the currency which prompted a slight rebound to 4.04 per dollar.
The Central Bank of Brazil has stepped in on several occasions, including on Wednesday and Thursday, to offer swap contracts that let businesses hedge against the real weakening further and dollar repurchase agreements intended to take immediate pressure off the real. According to Reuters, he did not rule out did not selling part of Brazil’s $371 billion foreign reserves. A recession has weakened the country’s currency, counteracting efforts by the central bank to contain inflation.
Brazil’s real extended its week-long route on Thursday as investors questioned how and when the central bank would work to calm fears of a mounting economic and political crisis.
In a quarterly report released on Thursday, the bank raised its 2016 inflation forecast to 5.3 percent from 4.8 percent.
Earlier this week, President Dilma Rousseff’s administration projected that Brazil’s economy would shrink 2.44 percent this year, compared to an earlier forecast for a 1.49 percent contraction.
“Economic activity in Brazil continues to be influenced by the macroeconomic adjustment now underway”, which is “necessary and essential” to balance public accounts and exercise greater control over the inflation rate, it added. “The decline in the currency is unprecedented, similar to the collapse of the (Russian) rouble past year… accordingly CDS are jumping and bond yields are rising”, said Bernd Berg, a strategist at Societe Generale in London.
The U.S. Commerce Department said Friday the country’s gross domestic product grew at a 3.9% seasonally adjusted pace in the second quarter, faster than the department’s previous estimate of 3.7%.
“With private sector spending slowing sharply, commodity prices in retreat and manufacturing activity contracting, producers across large swathes of the economy are likely to find it increasingly hard to pay their bills in the coming months”, said Michael Henderson, head of economics at Verisk Maplecroft.