Brazil central bank intervenes in FX, sells $1bn as real slides further

BRASILIA: Brazil's central bank intervened in the spot foreign exchange market on Tuesday for the fifth time in four days, as investor concern over the government's fiscal health pushed the real to within sight of last year's record low near 6.00 per dollar.

Tuesday's $1 billion sale, taking central bank intervention since Thursday to over $4 billion, came as pressure on Brazilian assets intensified after President Jair Bolsonaro eliminated certain fuel taxes and increased a tax on banks.

The real is now down 8.5% against the dollar this year. Aside from the Libyan dinar and Sudanese pound, which both suffered massive one-off devaluations, it is the world's worst performing currency against the dollar this year, according to Refinitiv data.

"There's a (market) crisis of confidence in the government, and we have negative rates," said the head trader at a bank in Sao Paulo, nothing that the central bank's benchmark Selic rate is 2.00% while inflation is running at around 4.5%.

"Plus, there is the risk that emergency aid is extended without any counterpart fiscal measures," he said, referring to the likely extension soon of cash transfers to millions of poor people, which will put further pressure on public finances.

The real traded as weak as 5.6950 per dollar, its lowest in three months and coming to within sight of last year's all-time low just under 6.00 per dollar.

The central bank's action on Tuesday followed two similar interventions each on Thursday and Friday, the first time this year it had sold dollars in the spot FX market.

Last year it sold almost $25 billion in the spot market.