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Emerging market currencies have been rattled by the prospects of a trade war between the US and major advanced economies
Despite assurances from Brazilian President Michel Temer that the currency real was not in crisis devaluation, it slipped further on Friday as one of the worst performers among emerging markets.
In three days it has fallen by 2.4 per cent against the dollar, marking its worst decline in two years.
Since the beginning of 2018, it has fallen by more than 17 per cent. In contrast, it fell only 1.99 per cent in all of 2017.
On Thursday night, during a broadcast interview, Temer said that Brazil had a reserve of $380 billion which would more than cover any debts.
“There is no risk of a currency crisis in Brazil,” Temer said.
Fears of global instability leading to all out trade wars between the US on the one hand and much of the rest of the rest of the world on the other have investors jittery.
In Brazil, the central bank sold off extra foreign-exchange swap contracts twice this week to alleviate pressure on the real. But, as the World Bank and others have warned, political instability in Brazil ahead of the national elections in October has hurt government efforts to rein in debt.
A number of emerging markets have taken blows against the US dollar in recent months, with South Africa’s rand the worst of them all.
The rand dropped more than 2 per cent on Friday alone, with fellow BRICS member India also feeling the devaluation pinch of its rupee.
There is likely to be growing central bank intervention to protect local currencies in these countries, analysts anticipate.
The BRICS Post with inputs from Agencies
