Brazil’s real falls to lowest level against U.S. dollar since introduction in 1994
Date
12/19/2024 7:09:44 AM
(MENAFN) Brazil’s real fell to its lowest level against the U.S. dollar since its introduction in 1994, reflecting investor frustration with President Luiz Inácio Lula da Silva’s approach to managing government spending. The depreciation comes as Congress debates a bill backed by Lula, which aims to cut 70 billion reais (approximately USD11 billion) from government spending. However, many market participants believe the proposed measures are insufficient to stabilize Brazil’s finances, further undermining confidence in the currency.
On Wednesday, the real dropped 2.8 percent against the dollar, reaching 6.26 per dollar—its weakest nominal level in nearly three decades. The real has suffered a steep decline this year, losing nearly 23 percent of its value against the U.S. currency, highlighting the challenges Brazil faces in managing an economy historically prone to volatility and inflationary pressures. Late Tuesday, the lower house of Congress approved less-contentious portions of the spending bill, but critical components, such as restrictions on minimum wage increases, remain unresolved. With Congress set to adjourn on Friday, time is running out to finalize key fiscal measures.
Brazil’s central bank has repeatedly intervened in currency markets to slow the real’s slide, but its efforts have largely failed to halt the depreciation. Economists warn that the real’s weakness could drive up the cost of imports, potentially fueling inflation as early as January. The uncertainty surrounding the fiscal package’s passage in Congress has only compounded market anxieties, adding to downward pressure on the currency.
Analysts have criticized the government’s approach to fiscal reform, noting that the proposed package is inadequate and likely to be further diluted during the legislative process. Mario Sérgio Lima of Medley Advisors remarked that while a rate of 6 reais per dollar might be acceptable to markets, approaching 6.30 reais could signal excessive pessimism. The government’s move to introduce increased spending through income tax measures has further eroded confidence, exacerbating fears of fiscal instability.
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