The Brazilian real is weakening against its major currency competitors on Thursday as the central bank begins to ease monetary policy and pump liquidity into the financial system. Despite its late-2019 push, the real has been one of the worst-performing currencies in forex markets amid selling pressures over bearish economic growth, forecasts, and fiscal worries.
On Wednesday, the Monetary Council approved lending directly to financial institutions and use their credit portfolios as collateral. Officials estimate that total credit portfolios could exceed $124 billion. The central bank confirmed in a statement that the temporary credit line would ensure the banking system is stable during the economic fallout from the coronavirus pandemic.
The measure comes a little more than a week after Brazil slashed interest rates by 50 basis points to 3.75%.
The federal government recently unveiled a $10 billion stimulus package that aims to help businesses maintain employment levels and avoid cutting workers’ salaries and hours. The government’s program will cover up to 70% of companies’ wages and hours for three months, but contributions will be limited and vary based on each employee’s earnings. Employers will be permitted to suspend workers’ contracts for up to 60 days.
The Economy Ministry projects that the initiative could save up to 12 million jobs. On Tuesday, the unemployment rate came in at 11.6%, matching the median estimate.
On the data front, industrial production rose 0.5% in February, beating the market forecast of -12.5%. It is down from the 1.2% jump in the previous month. The IHS Markit manufacturing purchasing managers’ index (PMI) slipped into contraction territory, falling from 52.3% in February to 48.9 in March.
The USD/BRL currency pair rose 0.5% to 5.2803, from an opening of 5.2537 at 17:17 GMT on Thursday. The real has fallen 37% against the greenback over the last 12 months. The EUR/BRL tumbled 0.57% to 5.7282, from an opening of 5.7594. The real has lost 32% against the euro in that same period.