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Amid mounting economic challenges, the Central Bank of Brazil has resorted to extreme measures to stabilize its currency. On Thursday, the bank announced plans to auction $3 billion in the spot market to mitigate the real’s decline, according to an official statement.

However, market operators report that the intervention extended to an additional $5 billion during the same trading session, bringing the total to $8 billion.

USD/BRL

This intervention came after the dollar surged 2.78% in a single day, reaching an all-time high of 6.2679. On Wednesday, the central bank paused a four-day streak of injecting over $12.75 billion into the market through spot operations and repo auctions—dollar loans with repurchase commitments.

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Despite injecting more than $3 billion into the spot market on Tuesday, the central bank failed to halt the USD/BRL depreciation, which continues to drive inflation in Latin America’s largest economy. The currency’s persistent weakness reflects growing investor concerns over Brazil’s fiscal deficit.

The Brazilian real has been the worst-performing currency this year, depreciating by over 22%. The central bank’s strategy focuses on providing liquidity to prevent sharp exchange rate fluctuations. However, its efforts are seen as a stopgap measure, with limited impact in the face of broader economic concerns.

What is Happening in Brazil?

Investors remain skeptical about the government’s commitment to addressing fiscal imbalances and managing debt. Last month, President Luiz Inácio Lula da Silva announced tax exemptions alongside a plan to cut spending by 70 billion reais ($11.5 billion). Yet, the markets were unimpressed, interpreting these moves as prioritizing economic growth over fiscal stability.

This growing skepticism underscores the challenges Brazil faces as it navigates economic pressures and attempts to balance short-term stabilization with long-term fiscal responsibility.

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.