The bank projected a 2.7 percent contraction in the Brazilian economy this year, a major revision from its June estimate of a 1.1 percent decline.
Advertisement
The Central Bank of Brazil auctioned off currency-swap contracts and dollar-repurchase agreements Wednesday afternoon local time. President Alexandre Tombini mentioned that different options will be used to stabilize the currency.
Brazil faces problems on many fronts.
A growing political crisis that threatens to unseat President Dilma Rousseff and a deepening economic recession have dragged the Brazilian real to its weakest level since the currency was created in 1994. As remarkable as this past session’s move was and the implications of a central bank acting to defend its exchange rate, it remains to be seen how effective the effort will prove.
Earlier today, predictions for 2015 and 2016 inflation, as well as GDP growth for 2015 worsened, according to a quarterly report issued by the central bank.
Brazil’s sovereign credit rating was also dinged earlier this month after Standard & Poor’s downgraded it to junk status.
Debt-laden Petrobras (PBR) rose nearly 3% and Itau Unibanco Holding (ITUB) is gained 3.7%.
The real has been dropping against the dollar in recent days, pulled down by political turmoil and the country’s economic troubles.
The bank’s announcement on Wednesday provided a brief boost for the real, but the central bank needs to sell reais directly into the market to have a longer-lasting impact, said Luiz Carlos Baldan, a director of the Fourtrade brokerage in São Paulo. The CDS have risen nearly 200 bps since the end of August and last traded above 500 bps in October 2008.
Advertisement
“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.
