SAO PAULO: Brazil's real rose sharply against the dollar on Wednesday, regaining exchange rate levels in effect before the 2008 financial crisis, the Sao Paulo exchange said. The real rose 1.24 percent to 1.6313 to the dollar, an increase analysts attributed to inflows of foreign capital into the Brazilian market. Industrial groups and the Latin American giant's government are concerned about the appreciation of the real, which makes exports more expensive.
"This sudden acceleration of the dollar's drop, below 1.65 real, is due in part to speculation" from investors, Walpires Corretora analyst Leandro Martins told AFP. Since early this year, the real has increased 1.76 percent against the dollar, up from the last day of trade in 2010 (at 1.66 real). Last year, the real saw total growth of 4.6 percent, compared to 32.7 percent in 2009 against the dollar.
The Brazilian currency had dropped 23.17 percent against the greenback in 2008 due to the global financial crisis. On Tuesday, the Brazilian government imposed a six percent tax on foreign credits taken by banks and firms for 360 days or less, a new tool to reduce the massive inflows of foreign currencies in Brazil, a major exporter of raw materials. However, Martins said it was more of a medium-term measure that will have no impact on the real.
"The government is concerned because the real is appreciating in value but in order to correct that, it would have to intervene on economic factors by reducing the key intervention rate, for example," he said. Brazil's Central Bank maintains high rates in order to battle inflation. On Wednesday, the bank increased its inflation rate forecast for this year to 5.6 percent, up from 4.5 percent.
But it slightly reduced its anticipated inflation rate for 2012 from 4.8 percent to 4.6 percent. The bank provided the forecasts on the basis of an 11.75 percent annual interest rate and an exchange rate of 1.65 real to the dollar.
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