The value of the Brazilian real dropped to less than two reais per U.S. dollar on Monday for the first time in three years. Responding to investor concerns over Greece’s possible exit from the Eurozone and slowing global economic growth, the euro dropped to its lowest level since mid-January, dragging the real and other emerging-market currencies along with it. The real has seen a 13 percent depreciation since late February, and at 1.99 reais to the dollar, surpassed its previous low point from July 2009.
Traders expect Brazil’s central bank to begin selling dollars in order to support importers and temper a potential spike in inflation usually associated with a drop in currency value. “Over the next three months, monthly inflation will be slower than in April,” said Brazilian Central Bank President Alexandre Tombini in Rio de Jainero last week. Tombini added that the real is weakening as part of a global trend that favors the dollar over most currencies, particularly those that were boosted by the boom in commodity prices.
In an effort to quell panic among investors, Finance Minister Guido Mantega explained on Monday that a depreciating real and a strong dollar will help “Brazilian exporters compete overseas and it also helps Brazilian manufacturers compete against imports in our own market." Though the Brazilian government has taken steps to avoid a steep currency appreciation in the past, Mantega said that it will not intervene this time.
June 1: This AQ-Efecto Naím segment looks at sustainable cities in the hemisphere.