The dollar rate in Brazil has fallen in recent days to the lowest level in five months, due to increases in the benchmark interest rate and commodity prices, although analysts predict a reversal of the trend in this election year.
The American currency is currently trading around 5.2 reais and has entered its sixth week of decline, with losses of 7.6%.
This is the lowest level since September 6, when it reached R$5.17, according to the Central Bank of Brazil (BCB).
According to financial information firm Economatica, the dollar has depreciated in Brazil more than in any other country so far this year, followed by Chile (-5.42%) and Peru (-5.41%).
The current strengthening of the real is contrary to the weakness that it maintained for much of last year – with peaks of up to 5.8 reais – due to political turmoil and concerns about the fiscal scenario.
The dollar level was even one of the drivers of inflation in 2021, which accumulated 10.06% and was the highest since 2015.
Analysts attribute the fall in the US currency to two main causes: the level of the benchmark interest rate, at 10.75% after the eighth consecutive rise earlier this month; and the high world prices of raw materials, of which Brazil is one of the main producers and exporters.
Joelson Sampaio, professor at the Fundação Getúlio Vargas School of Economics, highlights “the attractiveness of Brazil’s interest rate for foreign capital, one of the highest in the world”.
And this happens at a time when “the United States has a very low interest rate, which also explains a search for investments from emerging countries that bring a greater return to this capital”, he adds.
The Selic rose from 2% last March to the current 10.75%, without having reached the end of the high cycle due to the persistence of inflation.
In the case of ‘commodities’, such as soybeans and corn, prices continue to rise due to strong global demand after the drops during the pandemic.
This also explains the good performance of Brazilian exports, a source of foreign exchange for the country, which ended 2021 with a trade surplus.
– Elections and volatility –
However, the scenario should get complicated with the approach of the presidential elections in October, in which Jair Bolsonaro aspires to re-election, due to the uncertainty generated by the electoral periods.
In addition, the expected increase in public spending is likely to cause greater volatility in the real.
The market expects the dollar to close the year at 5.58 reais, according to the BCB’s latest Focus survey.
An analysis by Bank of America indicates that the trajectory of the dollar against the real “is to decline in the short term, between 5.10 and 5.00”, and then possibly rise “to a new record”.
On the external front, the imminent hike in interest rates by the US Federal Reserve (Fed) in March could also affect the real: a rise makes this market more attractive, safer than emerging markets, where the currency becomes scarcer. and therefore valued.
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