Brazil Real At All-Time Intraday Low Of BRR2.344/Dlr
Dow Jones Newswires
May 23, 2001
SAO PAULO -- Brazil's real crumbled in early trading Wednesday and depreciated to its weakest session low ever in the face of a series of negative factors impacting sentiment.
At 1318 GMT, the local currency was trading at a midrate of BRR2.360 to the dollar on a wide spread of BRR2.340 to BRR2.380. The currency is at its weakest point since it set an intraday low of BRR2.341 May 15 and since it was first introduced in 1994 as part of an effort to stamp out inflation.
Traders said there were a number of things hurting the currency, including politics, monetary policy and Argentina.
They said there was worry that the central bank monetary policy committee may unveil a 75 basis points increase in the key interest rate late Wednesday. At the moment, the market consensus is that the central bank will opt for a 50 basis points rise for the third month in a row to 16.75%.
But two traders said some quarters of the market are concerned that the committee will opt for a 75 basis points hike, a move that would likely show that the market is largely underestimating the impact of the weakening real on inflation, and that the nation's economy is in worse shape than previously thought.
Such a rate increase would also come ahead of the government's plan to introduce energy rationing at the start of June, a move that will add to volatility in the markets, hurt the economy and likely further depreciate the real.
The market is also nervous about Argentina's planned debt swap. Tuesday, the neighbor sold three-month and six-month T-Bills at lower yields than those demanded by investors in recent secondary market trading. However, traders here said the yields were still too high and worried about whether there would be enough investor support for Argentina's plan to swap short-term debt for longer-term securities.
Argentina, whose economic woes have been the main driver of the real's 15% depreciation since the start of the year, has received authorization from the U.S. Securities and Exchange Commission to issue as much as $20.4 billion in global debt, and talk is that another $10 billion may be issued for the swap on the local market.
Traders said they were also worried about two senators coming forward and awashing the government with a fresh wave of corruption allegations.
There is speculation that Sen. Antonio Carlos Magalhaes and Sen. Jose Roberto Arruda will spill the beans if their colleagues with the Ethics Committee decide to start impeachment proceedings against them. They're charged with tampering with the Senate's voting system to obtain a list of secret votes last year.
Magalhaes is a former president of the Senate, while Arruda is a former head of the ruling coalition in the Senate.
Corruption allegations against top government and legislators have sprouted like wildfires in recent weeks, putting additional pressure on the battered Brazilian currency.
The senators could divulge secrets that could further the opposition's cause to set up a congressional probe into alleged corruption within President Fernando Henrique Cardoso's administration. Such an investigation would consume Congress and paralyze its ability to pass key reforms for the rest of the year, according to political analysts.
It would also damage the current administration's prospects ahead of next year's presidential elections.
-By Anthony Dovkants, Dow Jones Newswires;55-11-3813-1988; anthony.dovkants@dowjones.com |
