Arab Today, arab today brazil to spend 55bn to defend sagging currency
Last Updated : GMT 12:41:09
Arab Today, arab today
Arab Today, arab today

Brazil to spend $55bn to defend sagging currency

Arab Today, arab today

Arab Today, arab today Brazil to spend $55bn to defend sagging currency

Sao Paulo - AFP

Brazil\'s central bank is to earmark $55 billion until year\'s end to prop up the sagging real at a time when Latin America\'s biggest economy is showing weak growth. In a statement issued overnight, the bank announced the massive currency intervention involving daily sales of currency swaps and derivative contracts to boost the real and regain the confidence of markets. Following the announcement, the Brazilian currency, which has been at its lowest level against the greenback in four years, opened at 2.40 to the dollar Friday, up 1.23 percent from Thursday\'s close. \"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 dollar amid anticipation of tighter US monetary policy, investors are withdrawing from emerging markets seen as showing structural weakness. The central bank said it would offer $500 million a day in currency swap contracts from Monday through Thursday and $1 billion on Fridays, without ruling out further interventions if necessary. Since May, it has already injected $45 billion to prop up the real, which means it will have put in a total of $100 billion by the end of the year. The $100 billion represents nearly a quarter of the country\'s foreign reserves, according to the daily O Estado de Sao Paulo. \"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,\" he added. \"It was a good decision to the extent it clarifies and makes official for the markets a daily intervention to meet the demand (for dollars),\" said Silvio Campos Neto, an analyst with Consultora Tendencias. \"That is what we saw coming, but today it is in a transparent, predictable and daily manner, he added. \"The main goal is to signal to the market that the bank will continue to provide what is necessary.\" The real\'s weakness comes as Brazil is showing stagnating growth. Finance Minister Guido Mantega has said GDP growth would reach only 2.5 percent this year and four percent in 2014. Last December, Mantega forecast four percent growth this year and in July brought it down to three percent. Meanwhile, the central bank, concerned about rising inflation, hiked its base rate to 8.5 percent in July, up from its historic low of 7.25 percent early this year. Brazil\'s 12-month inflation reached 6.27 percent until July, close to the 6.5 percent upper limit of the government target. The struggling domestic industrial sector opposes high interest rates, which it says will discourage investment. Brazil has experienced two years of low economic growth and high inflation, which have dented President Dilma Rousseff\'s popularity. Rousseff has also been hurt by last June\'s massive street protests demanding better public services and an end to endemic corruption. Brazil posted 0.9 percent GDP growth last year, after growing 2.7 percent in 2011 and 7.5 percent in 2010.

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