Not even the discourse by Brazil’s President Dilma Rousseff on Monday in New York at the United Nations General Assembly, stating that fiscal measures undertaken by her administration were leading to the revival of Brazil’s economic scenario, were enough to calm international and domestic investors. The U.S. dollar once again surged against the Brazilian real, closing the day above R$4 to US$1, while Brazil’s stock market registered its lowest level in six years.
The devaluation of the Brazilian currency by 3.36 percent in a single day had not been seen since 2011. The Central Bank instead of intervening in the foreign exchange market, as it did last week, only renewed foreign exchange swaps (sale of US dollars in the futures market), opting not to sell the U.S. currency from its international reserves.
During the weekend, Central Bank President, Alexandre Tombini, told journalists that the entity would be willing to sell U.S. dollars from its international reserves, today at approximately US$370.6 billion, in the spot market, which led the US currency to halt its appreciation trend.
The appreciation of the U.S. currency on Monday moved side by side with the decline of Brazil’s stock market. The Bovespa Index (Ibovespa) retreated for the seventh consecutive session on Monday, falling by 1.95 percent, its lowest level in more than six years. The Index registered major losses for Petrobras and Vale stocks.
Concerns about the Chinese economic slowdown, in the international front, as well as the impact of the depreciation of the Brazilian currency on companies with foreign-currency debts weighed heavily on investors’ minds. According to some analysts the foreign currency debts could lead many Brazilian companies to halt investments, since cash flow would be significantly reduced.