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The Brazilian real has been the worst-performing currency in the world over the past four sessions, adding to a 21% drop this year against the greenback. The benchmark Ibovespa stock index — Latin America’s largest — has fallen 3.8%.
The selloff that sent the real plunging to a record low is engulfing everything from stocks to local-currency debt to dollar bonds.
“Brazil has become ‘sell first, ask later’ in the current market,” said Sergey Goncharov, a money manager at Vontobel Asset Management. “The fiscal concerns coupled with the central bank’s reaction to the FX move triggered some panic selling.”
Market watchers say extraordinary measures on Tuesday by the central bank to stem the currency’s slide are little more than a temporary fix, and warn that lawmakers’ moves to water down a high-profile austerity package are likely to only add to the turmoil.
The widening rout shows how investors are increasingly skeptical that President Luiz Inacio Lula da Silva – whose recent emergency brain surgery came at the worst possible time – is serious about reining in a soaring fiscal deficit.
Brazil’s lower house altered Lula’s spending proposal late Tuesday in ways that may further unnerve investors. While they approved the plan, which awaits a vote in the Senate, lawmakers struck a proposal that would have let the government restrict the use of tax credits by companies if finances worsen.
The currency slipped about 1% on Wednesday, underperforming all its emerging-market peers. It touched session lows after Finance Minister Fernando Haddad said Brazil might be under a “speculative attack,” adding that he expects the currency to eventually settle down.
