Brazilian Real Weakens Amid Policy Decisions

By Marcela Ayres

Summary

The Brazilian real has recently weakened significantly, but central bank chief Roberto Campos Neto reported no market dysfunction, thus no intervention occurred during a congressional hearing.

Key Points

• The Brazilian real has depreciated nearly 12% against the USD this year.
• Campos Neto attributes the currency’s decline to Brazil-specific factors and heightened risk perceptions.
• The central bank remains firm on potential interest rate hikes to combat inflation.
• Disinflation efforts have not significantly impacted economic activity; however, inflation expectations are drifting from the desired 3% target.
• Campos Neto emphasized the currency’s floating nature helps absorb shocks and avoids resource misallocation.
• The central bank will intervene if necessary, backed by significant foreign exchange reserves.
• Gabriel Galipolo oversees the foreign exchange market and is seen as a potential successor to Campos Neto.
• The bank intervenes only in cases of market dysfunction, which has not been detected recently.