Sun, Aug 25, 2013 - Page 13 News List

Brazilian economy gets cash injection from central bank

AFP, SAO PAULO, Brazil

Markets and analysts cheered on Friday after the Central Bank of Brazil pledged US$55 billion (NT$1.6 trillion) until the end of this year to prop up the sagging real while Latin America’s biggest economy is showing weak growth.

The Brazilian currency, which has been at its lowest level against the US dollar in four years, closed at 2.35 to the greenback on Friday, up 3.2 percent from Thursday’s close.

On Wednesday, the real sank to 2.45 to the US dollar, its lowest level since December 2008 amid the international financial crisis.

Friday’s rise followed the announcement by the bank overnight that it would conduct daily sales of currency swaps and derivative contracts to boost the domestic currency and regain the confidence of markets. Analysts hailed the bank’s robust move.

“The intervention was a positive signal for all emerging markets,” said Luis Costa, a strategist at Citigroup. “It signaled to investors that central banks of emerging economies are reacting more aggressively and are ready to step up their intervention to stabilize markets.”

Brazil, along with Russia, India and Turkey, is one of the main victims of a retreat by investors from major emerging economies in recent days.

Keen to capitalize on a stronger US dollar amid anticipation of tighter US monetary policy, investors are massively pulling out of emerging markets seen as showing structural weakness.

The central bank said it would offer US$500 million a day in currency swap contracts from Monday to Thursday and US$1 billion on Fridays, without ruling out further interventions if necessary.

Since May, it has already injected US$45 billion to prop up the real, which means it will have put in a total of US$100 billion by the end of the year. The US$100 billion represents nearly a quarter of the country’s foreign reserves.

“I think the central bank’s posture is necessary given the markets’ current volatility,” said Wellington Ramos, an analyst with Austin Rating in Sao Paulo. “There is a need to regain the confidence of investors.”

“It was a good decision to the extent it clarifies and makes official for the markets a daily intervention to meet the demand [for US dollars],” said Silvio Campos Neto, an analyst with Consultora Tendencias.

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