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Bond Market News
Brazil’s Central Bank Intervenes to Counter Currency Selloff
December 23, 2024
Brazil’s central bank intervened to counter its currency selloff, by selling $7bn through spot sales and credit line auctions. This was also complemented by President Lula’s pledge to uphold fiscal discipline and not interfere with monetary policy. The central bank sold $8bn on Thursday alone, the biggest daily sale of dollar since at least 1999. Till date Brazil has spent $17bn in spot sale transactions overall. The Brazilian real and Brazilian equities have struggled this year, with the currency and the Bovespa Index, down ~20% and 8% YTD respectively. Analysts attribute the selloff to Brazil’s lack of fiscal credibility, warning of fiscal dominance where government spending undermines monetary tightening. Also, they noted that inflation concerns have caused the central bank to raise rates to 12.25%, with further hikes anticipated. Outgoing central bank governor Roberto Campos Neto stressed that interventions aim to stabilize markets, not dictate currency levels.
Last week, Brazil’s dollar bonds dropped by 2-4 points on the back of its currency sell-off. Its notes traded stable today.
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