The Brazilian Real (BRL) has hit a fresh 15-month low on Wednesday and the bottom is nowhere to be seen. With the investors’ appetite shifting from emerging currencies to more conservative options, such as the dollar and Swiss franc, economists forecast more declines for most of the EM currencies.
Brazil is traditionally very dependent on foreign capital inflows, as domestic savings levels are relatively low. The declining real is good news for the government, which still sees the currency as overpriced. Moreover, Brazilian exporters, crucial for its economy, are benefiting from the drop.
Julian Jessop, chief global economist at Capital Economics, said in a note the reason is not so much a signal of bad monetary policies in emerging markets, as it simply shows the shift in investors’ interest. The US dollar is once again regarded as safe haven and the EM currencies are bound to fall.
The dollar is strengthening despite economic pressures it faced during the summer – especially the long debt ceiling negotiations and the loss of the US triple-A credit rating from S&P.; Moreover, the escalating eurozone crisis is now making the dollar even more attractive, as the investors dump the euro.
And with no light at the end of the tunnel, currencies are not likely to reverse their falls any time soon.
Source: Financial Times