Market anxiety dragged Brazil’s real currency to a historic low on Monday as significant central bank interventions again failed to counter market concerns over government spending.
The real closed at 6.09 per U.S. dollar, with a year-to-date depreciation shaving off a fifth of its value, making it one of the worst performers among emerging market currencies.
Interest rate futures continued to rise, with bets that the central bank will hike its key borrowing rate again in January, likely by 125 basis points instead of 100 bps under its recent guidance.
The real opened sharply lower against the U.S. dollar as President Luiz Inacio Lula da Silva renewed criticism of what he sees as unreasonably high borrowing costs. The currency briefly pared losses after central bank interventions, before resuming its downward spiral.
In an interview with major television broadcaster Globo, aired late Sunday, the leftist leader dubbed the rate hikes “irresponsible” and said his government would “take care of that,” hinting at potential policy changes ahead.
Next year, the central bank’s rate-setting board will have a majority of members chosen by Lula, as the president is commonly known, including his pick for governor.
