Despite Billions to Prop Dollar Brazil Real Drops over 30%

US dollar Brazil was forced to appeal to 22.9 billion US dollars in the past month, including sales of foreign reserves, derivatives and loans to prop the weakened Real punished by investors fleeing from emerging markets to more secure assets.

More over sales of reserves to buy the Brazilian currency in the spot market totaled 3.2 billion US dollars from October 8 to October 20, Central Bank President Henrique Meirelles said in testimony before congress. The other types of intervention, including loans and currency swaps, don't affect the level of reserves.

"Even smaller economies, like Mexico, have spent more than us," Meirelles said in Brasilia. Mexico's central bank bought 6.4 billion worth of pesos on October 10 alone to shore up the currency.

The Real has lost a third of its value against the US dollar since reaching a nine-year high August first, causing some of the biggest companies to report more than 5 billion reais (2.2 billion USD) of losses from bad currency bets. The Bovespa stock market index has fallen 32% in the period.

So far this month the Brazilian currency has dropped 20%, the third-worst performer among the 16 most-actively traded currencies, trailing only the South African rand and Mexican peso.

In a decree published Wednesday, October 22, Brazilian President Luiz InΓ‘cio Lula da Silva authorized the Central Bank to engage in currency swap transactions with foreign central banks. Brazil's international reserves stood before the crisis at US$ 200 billion.

In addition to foreign-exchange interventions, the Brazilian central bank has taken measures to inject more than US$ 71 billion in the banking system to ease a credit crunch that's hurting small and medium-size lenders.

Meirelles told Congress that bank lending fell 13% in the first eight business days of October from the same period the previous month.

However Latin America's largest economy is "performing well" amid the "severe" global credit crisis, Meirelles said. The government's debt as percentage of GDP has fallen because the country is a net dollar creditor, he said. Capital levels at Brazilian banks exceed the minimum amount required under the Basel guidelines, he added.

Meantime, Brazil's Finance Minister Guido Mantega also addressing congress said that economic growth in 2009 should slow to between 4 and 4.5% from an estimated 5% this year.

"Brazil's economy is more dynamic and has several comparative advantages over advanced economies," Mantega said. "The sole fact that only 13% of our GDP comes from exports is an advantage, we depend more on domestic demand than foreign markets, so we'll be less affected than China in case there's a reduction in global trade."



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  • ch.c.

    So right Simpleton !
    Lula the idiot is changing HIS mind nearly every time :

    – HE launched (rightly) International Brazilian Government Bonds in local currency in 2006…without tax of course
    What goes International (in bonds) is always TAX FREE
    – By 2008 He decided to put a tax on purchases to foreigners on the purchase for these bonds
    – Now…6 MONTHS OR SO LATER….he cancels that tax !

    What HE DID NOT UNDERSTOOD……WAS when these bonds were in the International HANDS….they traded TAX FREE ANYWAY ….REGARDLESS OF THE BRAZILIAN TAX !!!!! Because the market makers were International Investments Banks, such as UBS, Barclays, Goldman, Merrill, Lehman (before) etc etc
    Meaning that if I wanted to buy some of these bonds in 2008……I would have bought them from one of these market makers !!!!
    Even if I my account would have been at let say a small Geneva bank or wherever, it would have been “my” bank who would bought these bonds from one of these market makers !!!!!!!

    Therefore despite the Idiot Lula and HIS gang Mantega etc etc who wanted to tax my eventual purchase COULD NOT TAX ME !!!!!

    But my feeling is totally different as to why is CANCELLED that tax.
    the reason is BRAZIL is preparing the next Government International Bond Issue in Brl !
    Because the FIRST change of hands (Govt to International market) would have been taxable….not thereafter as explained !!!!

    Hey hey…just think again….the trick they already have in mind….without disclosing it clearly… far !!!!

    πŸ˜€ πŸ˜€ πŸ˜‰

    And be prepared for a nasty BLACK FRIDAY not only in equities, buit also IN CURRENCIES.
    The BP is falling 8 % against the US$ and the Swiss Franc, 5 % against the Euro, 10 % against the JPY
    The Euro is falling 3,5 % against the US$ and 6 % against the JPY
    or stated otherwise, just re-visit my currencies ranking stated several times

    3)Swiss franc

    Meaning 1 is the stronger the more you down the list, and 2 is stronger the more you go down the list, etc

    But starting with 6….you can start the emerging nations currencies as you LIKE (smiles)

    Finally on the 50B from Brazil, it did not mean it is already spent, but the money is ready for the auctions from Brazilians companies !!!!

    SWINGS SINCE…..1992 in the “strong” currencies !
    It will be interesting to see the emerging nations currencies later in…..South America !

  • Simpleton

    Ohhho, Luuullla Wants Me
    Yaa, Luuullla Wants Me, Ohhyaa Luuullla Wants Me (moola) to come back now.

    Zeroing the IOF isn’t going to cut it. Going to have to drop a few other barriers and disincentives me thinks.

    50Bi today you say ch? I wasn’t tuned in / haven’t gone to look but I had “heard” 2.50 was reached though 2.30 may have been the end effect of what you mention. Let’s see now, 200/50 = 4, 50- cuts 20 centavos, 4-1 =3, 3 x 20 = 60. So when BC is broke we’ll have 1.70 more or less which is where they were not too long ago. Does the thought of “STAYING POWER” concern any one but me?

  • Ric

    50 Billion US$ in Currency Swaps Today
    Who is right? Evidently the leadership thinks that the Real has overshot, devalued more than its proper level. But on what do they base that opinion? And are they right?

    Or has the bottom not yet been found? Confidence in the Real was one of the legs of the three-legged stool FHC’s team came up with to end hyper-inflation and stabilize and modernize the economy. That confidence was like Good Will in valuating a company, an asset even though somewhat intangible. Once lost, can you get it back? Three billion has left Brazil already this month, pulled out by foreign investors.

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