Real-ity Ch eck The year that has just gone started with
of US dollars from the country. Government
some bright promises for currency speculators in
was not in mode of intervention as long as
Brasil as they were buying Brazilian real at 1.833
rates prevailed in the range of 2.0 to 2.10.
against USD and were thinking that happy days
“We will continue working for a weak real
are to be here forever. Unfortunately for them no
to boost competitiveness of Brazilian firms,”
story gets finished in January. On 27th December,
Mantega told a group of business people in an
2012 Real was at 2.04 against USD and those
event on 29th August, which was also attended
speculators lost their banquet, if we believe
by President Dilma Rousseff. Tough talk from
Mr. Guido Mantega, finance minister of Brasil.
government
officials
and
currency-market
Extremely cheap borrowing rates in USA intervention by the central bank then kept the real
20
and Europe enabled speculators to borrow money
trading between BRL2.00 and BRL2.10, a range
at dirt cheap rate and they used to pump it into
that the market perceived as being “comfortable”
Brazil into government bonds which generally
for the government, from July through November.
had really high rates. From sky-high rate, it was
But when Brazil reported weaker-than-
impossible for the government to pump money
expected economic growth in the third quarter,
in the market to stimulate the flagging economy.
chatter that the government would consider a
This brought sky-fall for those who earned their
weaker informal trading band between BRL2.10
bread-butter and Ferraris from speculation.
and BRL2.15 caused the market to test the
Brazil responded by implementing targeted
central bank’s resolve amid a pickup in dollar
capital controls, while the Brazilian Central
outflows. The bank remained on the sidelines
Bank moved to slash interest rates--from an
until the currency approached BRL2.14, when
August 2011 high of 12.5% to a record-low
the bank sold dollars into the spot market
7.25% in October 2012 which triggered outflow
Some traders, however, said they believe the
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Economic and Commercial Report