Bloomberg reports Brazilian Currency Touches Four-Year Low, Prompting Intervention

Brazil’s real touched a four-year low, prompting the central bank to intervene for a second straight day as a report showed higher-than-forecast inflation.

“If there’s more currency devaluation, there will be more inflation,” Jankiel Santos, the chief economist at Banco Espirito Santo de Investimento in Sao Paulo, said in a telephone interview. “On top of that, the IGP-M shows that wholesale prices are under pressure again.”

Brazil may use all available instruments to contain the real’s volatility including selling dollars in the spot market, central bank president Alexandre Tombini said in an interview with Valor Economico published yesterday.
The currency has fallen more than 5 percent since Fed Chairman Ben S. Bernanke said on May 22 that the central bank may taper its stimulus program if the outlook for employment shows “sustainable improvement.”

Real Monthly Chart Shows Intervention Madness

click on chart for sharper image

Flashback March 3, 2012: Brazil Declares New Currency War on US and Europe.

The Financial Times reports Brazil declares new ‘currency war’

Brazil has declared a fresh “currency war” on the US and Europe, extending a tax on foreign borrowings and threatening further capital controls in an effort to protect the country’s struggling manufacturers.

Guido Mantega, the finance minister who was the first to use the controversial term in 2010, said the government would not “sit by passively” as developed nations continue to pursue expansionary monetary policies at the expense of Brazil.

“When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper and it creates unfair competition for businesses in Brazil,” he said on Thursday after announcing changes to the so-called IOF tax.

Check out all these recent reports of Brazilian Real Intervention.

Is this madness or what?

By the way, with the huge slowdown in China (and Chinese demand for commodities plunging), Brazil is going to have a damn tough time stopping the slide in the Real and an equally hard time controlling inflation.

What happened to the alleged nirvana “When the real appreciates, it reduces our competitiveness”?

Mike “Mish” Shedlock