SAO PAULO: Brazil’s Central Bank warned on Thursday (Friday in Manila) of a deeper-than-expected recession in the world’s seventh-largest economy, with the darkening outlook sending the national currency plunging to new lows.
The bank projected a 2.7-percent contraction in the Brazilian economy this year, a major revision from its June estimate of a 1.1-percent decline.
It also predicted inflation would spurt to an annual rate of 9.5 percent by the end of the year before subsiding over the next two years.
On both counts, the bank’s projections were worse than the government’s GDP and inflation estimates.
The government statistics office, meanwhile, said unemployment rose to 7.6 percent in August, the eighth consecutive monthly increase and up from 4.8 percent at the end of 2014.
The slew of bad figures hit currency markets: the real hit fresh lows against the US dollar, despite intervention by the central bank to try to limit the slide.
The currency has lost 36 percent of its value since the start of the year, and is down 42 percent from a year ago.
It was trading at 4.2 to the dollar, a 1.31-percent drop from Wednesday’s close. Earlier, it fell to 4.24 to the dollar, its lowest level since the currency was created.
Analysts blamed the real’s plunge on the government’s inability so far to get an unpopular austerity package through Congress.
As long as fiscal austerity measures are not approved, said Italo Abucater, a Sao Paulo currency trader, “there will not be any kind of relief from the currency’s devaluation.”
“This is an acute and lasting crisis and as of now without the least prospect of improvement,” he said.
The Central Bank moved to break the real’s fall Wednesday and earlier Thursday by offering $4 billion at auction, with a buyback commitment at an undetermined date in 2016.
Finance Minister Joaquim Levy acknowledged Wednesday it will be “difficult, impossible” to set a level for the real.
But he expressed confidence that the market would stabilize once the government’s fiscal austerity measures go forward.