Brazil: Brazilian real weakens to lowest level in over three years
November 30, 2012
By 30 November, the Brazilian real (BRL) traded at 2.14 per USD, which was 5.2% weaker than the level registered at the end of the previous month. The figure follows on a 0.3% drop recorded in the month of October. In fact, the BRL's value against the U.S. dollar has now fallen to its lowest level since May 2009. In annual terms, the real has lost 18.1% versus the USD.
The real has been trading within a relatively narrow range in recent months (roughly above BRL 2.00 per USD), as the Central Bank has been acting to weaken the BRL in order to boost sluggish economic growth. In fact, some analysts have speculated about the possibility that the Central Bank is now de facto using the exchange rate as an additional policy instrument in order to achieve more flexibility to steer the economy onto a higher growth path. That said, a too-weak real is poised to place additional pressure on inflation, which is already hovering around the upper margin of the Central Bank's target level.
In recent days, however, the real has recovered somewhat and by 10 December traded at 2.07 per USD. This movement can be partially explained by recent actions of the Brazilian government, which, on 5 December, reduced the scope of the so-called financial operations tax (IOF, Imposto sobre Operacoes Financeiras) on foreign loans. The tax will now be levied on loans of up to one year (it was previously charged on loans of up to two years and, until June 2012, up to five years), a move that is expected to increase the supply of foreign currency in the country.