USD/BRL hits all-time high of 6.1496 amid failed BCB intervention

• The Brazilian real weakened significantly, reaching an all-time low following President Lula's comments on recent interest rate increases by the Banco Central Do Brazil.
• The BCB raised the Selic Rate by 100 basis points to 12.25%, with further hikes anticipated.
• The Brazilian real continues to face downward pressure despite BCB's $1.63 billion intervention in the spot market,

The Brazilian real weakened to an all-time low against the Greenback of 6.1496 on Monday after President Luiz Inacio Lula da Silva, known as Lula, criticized higher interest rates set by the Banco Central Do Brazil (BCB). At the time of writing, the USD/BRL trades at 6.1478. up by 2.92%.

USD/BRL surges to 6.1478 amid heightened fiscal concerns

On Sunday, Lula Da Silva called interest rate hikes “irresponsible” after the BCB decided to raise rates after market participants were disappointed of the budget deficit, which is currently about 10% of Brazil’s Gross Domestic Product (GDP).

Last week, the central bank decided to lift the Selic Rate by 100 basis points to 12.25% and hinted that two moves of the same size are on the cards. Initially, the USD/BRL dipped as low as 5.8694 but ended last Thursday’s session at 5.9923.

In its monetary policy statement, the BCB blamed the market’s negative reaction to the fiscal package, which is inflation-prone, sending inflation expectations above the central bank’s 3% target.

The Brazilian Real (BRL) began the week at 6.0687 and extended its losses despite the BCB intervention in the financial markets. On Monday, the central bank sold over $1.63 billion US Dollars in the spot market.

Ian Lima, money manager at Inter Asset, said, “The intervention should not change the trend, which continues to be driven by the strong global dollar and fiscal uncertainties.”

The Brazilian Real has been under stress after investors grew concerned about the budget deficit.

According to Bloomberg, “Brazilian assets have been battered by growing pessimism on the outlook for the country’s growing budget deficit. Lula has increased spending since taking office in 2023 to fulfill pledges of improving living standards for poor Brazilians.“

The Brazilian currency has depreciated over 20% in the year and is set to extend its losses as the USD/MXN eyes a test of 6.200.

A weekly BCB survey of private economists showed that the median sees inflation forecasts higher, and they expect the Selic Rate to peak at 14.25% in March of 2025.

Brazil’s November inflation finished at 4.87% YoY, above the 4.5% upper end of the BCB’s 1.5% to 4.5% target range. Policymakers vowed to bring inflation back to its 3% goal.

USD/BRL Price Chart - Weekly