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By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Brazil’s currency, the real, fell to its weakest level against the U.S. dollar since 2005 in February this year and according to an international economic consultancy group the reason is not the current corruption scandals at oil giant Petrobras, but deteriorating economic fundamentals.

Brazil's currency , the real, registered its lowest levels in the past decade during February 2015, Rio de Janeiro, Brazil News
Brazil’s currency, the real, registered its lowest levels in the past decade during February 2015, photo by Marcello Casal/Agencia Brasil.

According to Capital Economics’ Latin American Market Monitor report for February, the Brazilian real depreciated by nearly seven percent in February but only part of this depreciation can be attributed to the on-going corruption scandal at state-owned oil company, Petrobras and the downgrade suffered by the oil giant by credit rating agency Moody’s.

“We think that the further weakening of the Brazilian real has had more to do with the deteriorating economic outlook and fears that FX intervention may soon be scaled back,” stated the monthly report.

According to Capital Economics, Finance Minister Joaquim Levy indicated at the beginning of February that policymakers wouldn’t keep the real “artificially strong” in the face of market pressure. According to the consultancy the latest economic data has gone from bad to worse, while the economy’s terms of trade have continued to deteriorate.

Economic news coming out of Brazil in the past few weeks have not been good, corroborating to the consultancy’s gloomy outlook for Brazil this year. January’s labor data shows that the economy lost over 81,000 jobs during the first month of 2015, raising doubts as to how the once strong labor market will react to the country’s latest economic woes.

Economists surveyed by Brazil’s Central Bank on Friday (February 27th) forecast that the IPCA (Consumer Price Index) would rise by 7.47 percent in 2015, surpassing the inflation target of 6.5 percent. These same economists estimate that the U.S. dollar/Brazilian real foreign exchange rate will close the year at R$2.90/US$, the country’s GDP will register a retraction of 0.58 percent and industrial production will register a retraction of more than 0.70 percent this year.

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6 COMMENTS

  1. Going down,down,down and then we will have a new currency.The true value of the Real is at best 1:10usd

  2. Even at R$3.10/US$ (as of today), Brazil still has a severely overvalued currency. It has appreciated in real terms over the last decade because of the different inflation rates between the U.S. and Brazil – it would have to depreciate by 5% or more just keep up with this difference in inflation, and that has only recently started to happen. For holders of other currencies, such as Canada, Brazil still continues to become more expensive with each passing month even with this supposed depreciation.

    Prices in Brazil are out of control, and the word is out after the World Cup. Good luck getting any tourists to come for this abuse when Miami is cheaper and nicer. Example: adjusted Big Mac index has the $Real overvalued by around 60%.
    http://www.economist.com/content/big-mac-index
    Try going some place nice, and dinner for two starts at a hundred bucks and up, with generally mediocre quality. Just nutty. Brazil is still a country to avoid for international tourists.

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