Brazil: Real plunges to new record low in November
The Brazilian real ended 27 November at a record low against the U.S. dollar, before recovering mildly in the following days. On 29 November, the real ended the day at 4.24 per USD, a 5.6% depreciation from the same day in October. The currency has weakened notably in the second half of the year, and was down 9.1% year-on-year and 8.4% year-to-date.
A slew of interest rate cuts has undermined the real, which is also being weighed on by a worsening trade balance and generally subdued demand for emerging market assets. To stem the slide in the currency, the Central Bank intervened in the foreign exchange market for the first time in three months on 26 November.
Looking ahead, the real is seen remaining week in the coming months, before gaining some ground half-way through 2020 as growth picks up. Commenting on the currency’s outlook, Gustavo Rangel, chief economist for Latin America at ING, noted:
“Overall, Brazil’s fundamentals should display a more substantial improvement throughout 2020, as the effect of the aggressive monetary easing seen in recent months and the improved fiscal outlook, resulting from fiscal reforms, should result in faster economic activity. But the inability to execute a fiscal stimulus package suggests that this recovery could be slower than past recoveries, with its pace heavily dependent on the private sector’s “animal spirits”. This suggests that the consolidation of a stronger BRL trajectory is more likely towards the latter part of 2020.”