Brazil’s central bank intervened in the foreign exchange market to halt a further decline in the real, underpinning the pressures of the resurgent dollar emerging markets.
The currency was making a loss on Tuesday of 1.6 percent, bringing the real to more than BRL3.80 per dollar, its lowest level in more than two years, when the central bank announced it was auctioning another 30,000 contracts in foreign exchange swaps.
The move helped the real reduce its losses against the dollar to 0.6% or around the BRL3.75 level.
The real has lost 11 percent of its value in the past two months, hit by a combination of factors, including a trucker strike, investor uncertainty over October’s election result, rising oil prices and sluggish growth.
But the strength of the dollar has been the main factor that has weakened the real, as well as other emerging currencies. Central banks in Turkey, Argentina and Indonesia all responded by raising rates, and Brazil’s central bank is seen by some analysts as the next in line.
Term contracts sold by the Central Bank provide insurance to market participants against the devaluation of the real in a way that satisfies the dollar demand without the dollars changing hands.