Tue Dec 17 12:20:00 UTC 2024: ## Real Plunges to 30-Year Low Against Dollar Despite Central Bank Intervention

**São Paulo, Brazil** – The Brazilian real hit a three-decade low against the US dollar on Monday, closing at R$6.0934, a 1.03% increase. This marks the third consecutive day of gains for the dollar, despite intervention by the Central Bank (BC).

The BC conducted auctions totaling US$4.628 billion (R$28.2 billion at the closing exchange rate) in an attempt to stem the real’s decline. However, these efforts proved insufficient in the face of several factors contributing to the weakening currency.

Analysts attribute the real’s fall to a combination of factors, including typical year-end demand for dollars by companies remitting profits and dividends, and growing concerns about Brazil’s fiscal outlook. Market sentiment has deteriorated significantly due to fears that proposed government spending cuts may be watered down during the legislative process. The government’s plan to save R$327 billion over five years is facing skepticism, contributing to investors seeking “exchange rate protection” by buying dollars.

Further fueling the currency crisis is the worsening inflation outlook, despite the Central Bank’s recent increase of the benchmark Selic interest rate to 12.25% and signaling further hikes. Statements by President Lula da Silva criticizing the interest rate increases have added to investor uncertainty regarding the government’s commitment to fiscal discipline. The worsening of Brazil’s public debt, largely due to increased interest rates and a widening primary deficit, further dampens investor confidence.

The upcoming parliamentary recess, starting on December 23rd, adds to the concerns, as it leaves little time for the crucial spending cuts to be approved. Market operators note that the Central Bank’s intervention was not unexpected, given the pent-up demand for dollars leading up to the end of the year. With limited market liquidity remaining, companies and funds rushed to make their transactions before the recess.

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