In Brazil, the central bank has unveiled a $60bn intervention to support
the country's tumbling currency, which is languishing at
five-year lows against the US dollar. The four-month programme, which
launches today, will see the bank sell $500m of currency swaps,
contracts which provide investors with a hedge against a weaker Brazilian real,
on Mondays through Thursdays. On Fridays, it will offer $1bn on the spot market
through repurchase agreements.
Both are designed to prevent companies and individuals with dollar
obligations from scrambling to the market at the same time, afraid that waiting
will force them to pay more to buy dollars. When that happens, the real tends to
weaken further and faster.
The move follows a day of crisis meetings in Brazil in which Dilma Rousseff,
Brazil’s president, held an emergency meeting on Thursday with her top economic
officials to halt the real’s slide after it hit a five-year low against the
dollar. The central bank chief, Alexandre Tombini, meanwhile, cancelled his trip
to the Fed’s Jackson Hole conclave in order “to monitor market activity” amid
reports Brazil is preparing direct intervention to stem capital flight.
The country has so far relied on futures contracts to defend the real –
disguising the erosion of Brazil’s $374bn reserves – but this has failed to
deter speculators. “They are moving currency intervention off balance sheet, but
the net position is deteriorating all the time,” said Danske Bank’s Lars
Christensen.
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Greece “should not have been allowed into the euro”, the German Chancellor declared at an election rally on Tuesday evening. The decision to admit the country was “fundamentally wrong”, she said.
She sounded resolute, particularly to the crowd of voters in Rendsburg, but she didn’t offer much of an answer to the Greek financial troubles that are once again putting the heat under the eurozone project.
A week ago Wolfgang Schaeuble, the German finance minister, declared that Greece would need a third bailout. As alarm spread, Mr Schaeuble quickly clarified that no decisions had been made.
But the cat was out of the bag – bringing with it the question of eurozone unity again. Jens Weidmann, the head of the Bundesbank, was furious. He was “vexed” by how “recklessly people invoke” a break-up of the euro and issued a stark warning about what was at stake, not just for Europe but the global economy itself.
Like other emerging economies, Brazil is struggling with a massive outflow of capital that has dragged down the value of its local currency and increased costs for companies indebted in US dollars.
That is specially worrying for Brazil, which was already suffering with high inflation, soft consumer demand and dwindling investor appetite as its economy struggles to return to the glory days of above 4pc growth per year.
The central bank's monetary policy committee, or Copom, announced another half a percentage point hike to 9pc on Wdnesday in a bid to ease those inflationary fears and rebuild confidence eroded by erratic government policies.
"The sluggish real business cycle dynamics, the recent moderation in inflation, the sharp deterioration of business and consumer confidence...are likely to tilt the balance of views within the Copom towards repeating the July 50-basis-point rate hike," Alberto Ramos, chief Latin America economist with Goldman Sachs, said in a note to clients before the rise was announced.
"It's very early now to talk about a [third] economic support package. For the next full year we have no additional need for money," said Stournaras referring to the country's current EU-IMF sponsored rescue programme. "All this speculation is premature. The EU [troika] money ends next July and that's when we'll have to judge the situation again. Nothing, absolutely nothing is certain yet."
I no more believe him than I believe the repeated comments that the EU crisis is over or the rumors that Elvis is still alive.
Make no mistake, this situation will not come to a end while the status quo and funny money continue
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