Brazil’s real plummets as recession looms

Brazilians have for years dealt with inflation, but recent data indicates it has increased beyond analyst predictions [Xinhua]

Brazil’s real continued to suffer against the dollar on Wednesday, falling even further than its 12-year record low a day earlier.

On Wednesday, fears that Brazil is in danger of losing its investment rating sent the real spiraling to 3.49 (10:40am EDT) against the greenback.

A day earlier, it fell to a 12-year-low of 3.4684.

Year-on-year, the real has devalued by more than 52 per cent.

But the Brazilian real is also suffering from domestic fiscal policies which saw the primary surplus target drop from 1.2 per cent of GDP to just 0.15 per cent.

Brazilian markets fear that this could signal that the country will now receive a lower investment rating.

The real’s plunge, coupled with rampant inflation, the Odebrecht/Petrobras corruption scandal, and slowing global commodities demand has pummeled the Brazilian economy.

Despite the Central Bank’s recent increase of interest rates to 14.25 per cent, inflation has surpassed analyst expectations and reached 8.9 per cent in June.

Government data to be released Friday is expected to show that inflation reached 9.25 per cent for July 2015.

In July 2014, inflation stood at 6.5.

The Central Bank says a 4.5 per cent inflation rate is ideal and signals a healthy economy.

Last week, two of the country’s biggest banks both predicted that Brazil would be in recession by the end of 2015 and 2016 with a contracted GDP as high as 2.2 per cent.

Public confidence in the economy has significantly fallen.

According to UK-based market researcher Ipsos-Mori’s global poll, only 12 per cent of Brazilians believe their economy is in “good health”. Ipsos Mori data indicates that in 2012, 57 per cent of Brazilians believed their economy was doing well.

The BRICS Post with inputs from Agencies