By Jay Forte, Contributing Reporter
RIO DE JANEIRO, BRAZIL – In June 2011 the U.S. dollar sank against the Brazilian real to its lowest point in recent memory, it was US$1 to R$1.55. Now, a week after surpassing US$1 to R$2.60, the U.S. dollar climbed to US$1 to R$2.70, and ended Monday (December 15th) at US$1 to R$2.685.
The dollar is up 4.42 percent in December and 13.9 percent in the year. The value of the real to the dollar is at the lowest it has been since March 29, 2005, when the price had closed at US$1 to R$2.702.
Analysts say instability is partly a result of the external environment, especially after the Federal Reserve (Fed), the U.S. Central Bank, ended the dollar injection program in the world economy, driven by the recovery in employment in the United States.
Since the re-election of President Dilma Rousseff, the real has seen high volatility. The real didn’t gain ground even after the confirmation of the new economic team, with Joaquim Levy as the new Finance Minister, Nelson Barbosa the new Budget and Planning Minister, and Alexandre Tombini staying on as Central Bank President.
At the time the appointments were seen by the market as a way to gain back investor confidence and restore Brazil’s economic credibility. “We have no immediate measures to announce. There will be no surprises,” said Levy at a news conference after the announcement.
Yet domestic policy in Brazil has not helped, despite the Central Bank Monetary Policy Committee (COPOM) increasing the Selic rate (basic interest rates) to 11.75 percent per year. In theory, higher domestic interest rates help to prop up the real, because it increases the difference of Brazilian rates against the United States, making Brazil more attractive to international investors.
The day was also turbulent in the Brazilian stock market, the Ibovespa Stock Exchange index of São Paulo, closed the session with a fall of 2.05 percent, the lowest level since March this year. Petrobras shares, the most traded, fell 9.2 percent after the state again postponed the release of the third quarter balance sheet.