June 20, 2013 / 2:51 PM / 5 years ago

UPDATE 1-Brazil real sells off on Fed, China; central bank acts

By Walter Brandimarte and Natalia Cacioli

RIO DE JANEIRO, June 20 (Reuters) - Brazil’s currency sold off for a fifth session on Thursday, defying central bank efforts to stabilize the foreign exchange market, as investors fret about a likely withdrawal of U.S. stimulus and an economic slowdown in China.

The real tumbled about 2 percent for a second consecutive session on Thursday to as much as 2.27 per dollar, its weakest level in more than four years, complicating government efforts to rein in inflation.

The currency rout deepened after U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday that the bank’s stimulus program, which for years has supported appetite for emerging-market assets, will likely be reduced later this year and finished by mid-2014.

A fall in Chinese factory activity to a nine-month low in June added to concerns that emerging-market countries will also suffer from lower demand and weaker prices for their commodities exports.

China is Brazil’s main market for some of its principal exports such as iron ore and soybeans.

“Markets are going through a panic moment. The central bank, within its possibilities, is doing its job (to calm down investors) but the sentiment is pretty bad,” said Glauber Romano, a trader at the Intercam brokerage in Sao Paulo.

Earlier on Thursday, Brazil’s central bank sold 30,000 traditional currency swap contracts due on September 2 and another 30,000 contracts maturing on October 1, in a strategy that emulates the sale of dollars in the futures market.

The contracts provide investors with a hedge, a kind of insurance, against further declines in the dollar.

The intervention only briefly supported the real, however. By the end of the morning, the real hit fresh lows, driving interest-rate futures sharply higher on the BM&FBovespa exchange.

Investors fear that the sharp depreciation of the real, which has lost more than 10 percent since the beginning of May, will further stoke inflation by increasing the price of imported goods, forcing the central bank to increase its benchmark Selic interest rate more aggressively.

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