(MENAFN- The Peninsula)
The Washington Post
Brasilia: Brazilian markets bounced at the end of the week amid extraordinary central bank moves to curb a selloff in the currency that was spreading across the nation's markets.
The real gained as much as 1.4% on Friday, briefly erasing weekly losses, after policymakers stepped in again with both a spot sale and a credit line auction totaling a combined $7 billion.
Brazil's dollar bonds were among the best performers in emerging markets Friday, and the nation's five-year credit-default swaps fell.
The reprieve comes after the central bank stepped in almost every day for the past week to try to meet a surge in demand for US dollars.
It sold $8bn in back-to-back spot auctions on Thursday alone in the biggest daily sale of greenbacks since at least 1999.
They've spent about $17bn in spot sales so far. Speaking to journalists on Friday, Finance Minister Fernando Haddad said Brazil“needs to correct” the currency slide and come in when there are dysfunctions in markets, though he added that the central bank isn't seeking to defend a specific level for the real, but find equilibrium.
The moves helped stem the speed of the declines, though investors are still wary of the path ahead for the real, whose 20% slide this year makes it the worst performing major currency in the world.
Brazilian equities have also been among the worst performers globally, sending one valuation measure to the lowest relative to the emerging-market benchmark in almost 20 years.
Investors have rushed to dump Brazilian assets amid growing concerns over the country's deteriorating fiscal outlook.
The selloff that sent the real plunging to a record low spread to other asset classes - from stocks to local-currency debt to dollar bonds - with traders even piling into hedges against a sovereign default.
“The lack of fiscal credibility is the original sin of the current market rout in Brazil,” said Patrick Esteruelas, head of research at EMSO Asset Management.
“It seems difficult to catch this falling knife until they anchor the fiscal, growth cools or the market starts to think about a change of leadership.”
Brazil is running an annual budget gap of 10% - far wider than the ones seen during the leftist President Luiz Inacio Lula da Silva's first administration.
A highly anticipated spending cut plan presented last month fell well short of expectations, boosting concerns about the fiscal outlook. The package was watered down even further in Congress this week.
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