November 26, 2019 / 11:59 PM / 17 days ago

Brazil real hits record low; central bank intervenes twice

BRASILIA (Reuters) - Brazil’s currency slid to an all-time low against the dollar on Tuesday, forcing two rounds of intervention from the central bank to ease market strains and a pledge from its president that it stands ready to wade in again on Wednesday if necessary.

In a tumultuous day for the market, which grappled with comments from Brazil’s economy minister and president as well as the central bank’s intervention, the dollar rose as high as 4.2770 reais before closing at its low of the day around 4.2330.

That high of 4.2770 reais was almost 1% higher than the dollar’s previous peak, reached in 2015 when Brazil was mired in one of the worst recessions in its history.

“Today we had a very atypical movement; the exchange rate became dislocated, with gaps in liquidity,” central bank President Roberto Campos Neto said at an event promoted by newspaper Correio Braziliense.

“If tomorrow we think there are dysfunctional moves, that Brazil’s exchange rate is behaving unlike other countries’ and there are liquidity gaps in the market, we will intervene again just like we did today,” he said.

Market participants said the real’s slump on Tuesday was triggered by comments from Economy Minister Paulo Guedes the evening before that he was not worried about its weakness and that a weakening exchange rate is a natural consequence of falling interest rates.

In another speech in the U.S. capital on Tuesday, Guedes made no mention of the currency’s slide, suggesting it was not a major concern. That coincided with the real hitting a fresh low, followed by the central bank’s second dollar auction of at least $1 million.

“This need for intervention partly responds to a self-inflicted wound ... following statements from Economy Minister Paulo Guedes,” JP Morgan analysts wrote in a note on Tuesday.

Brazil’s real has been one of the worst-performing emerging market currencies this year and was one of the biggest losers against the dollar on Tuesday among emerging market currencies, most of which were also lower.

The central bank has cut its benchmark Selic rate by 150 basis points to a record-low 5.00%. Campos Neto on Tuesday repeated the central bank’s recent line that another 50 bps cut is likely.

The Brazilian currency’s decline accelerated this month after foreign bidders effectively failed to show up at a “mega” oil auction, meaning inflows into Brazil will be billions of dollars lighter than officials and traders had banked on.

Earlier on Tuesday, President Jair Bolsonaro said he would like to see the dollar fall, but also gave his backing to Guedes.

Reporting by Jamie McGeever and Marcela Ayres; Additional reporting by Lisandra Paraguassu in Brasilia and Andrea Shalal in Washington; Editing by Cynthia Osterman

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