As President Lula da Silva’s government explores alternatives to curb economic uncertainty, the Central Bank of Brazil has achieved a temporary positive impact on the foreign exchange market.

On Thursday, the Central Bank sold $3 billion in a spot auction, continuing a series of interventions in the currency market amid a significant outflow of U.S. dollars from Latin America’s largest economy.

Following the auction, which was announced late Monday ahead of the Christmas holiday, the [[USD/BRL}} appreciated by 0.5% against the dollar.

USD/BRL

However, the Brazilian real has experienced a steep devaluation of 24% against the U.S. dollar this year, despite the Central Bank’s efforts, which have included injecting more than $15 billion to stabilize the currency. The outlook remains uncertain.

Unavoidable Depreciation

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While Lula da Silva’s administration has implemented measures such as tax reform and other economic strategies aimed at improving the situation by 2025 and 2026, the results have fallen short of expectations.

The proposed tax reform, designed to simplify the tax system by replacing multiple levies with a single value-added tax, has sparked market uncertainty.

Concerns arise from the reform’s centralization of tax collection under the federal government and its management by an expanded council, which has raised questions about its impact on the current tax structure.

As a result, the real continues to fluctuate, reaching a high of 6.30 per dollar. Additionally, speculation continues to weigh on both the stock market and the currency’s performance, and the measures taken so far have failed to stem the devaluation.

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.