The U.S. Federal Reserve has announced a new program to provide funds for other central banks—including USD 60 billion to Brazil—in an attempt to improve liquidity and stabilize markets.
The operation will happen by way of swap lines—a tool that allows the Fed to accept other currencies in exchange for dollars—already used in the 2008 financial crisis. Besides Brazil’s Central Bank, the monetary authorities of Australia, South Korea, Mexico, Singapore, and Sweden will receive USD 60 billion each. Denmark, Norway and New Zealand will get USD 30 billion each. Funds will be available for six months.
On Thursday, USD was traded at BRL 5.12, up 0.4 percent after the Brazilian Central Bank lowered its benchmark interest rates to 3.75 percent, in response to the impacts of Covid-19 on the economy.
The Fed’s help may have come at a good moment, as data compiled by investment bank BTG Pactual show that the Central Bank’s interventions in the market have amounted to USD 20.1 billion this month so far. However, that was not enough to stop the Brazilian Real devaluating roughly 28 percent in the year, becoming the worst-performing currency in the world.
Moreover, according to BTG Pactual, in the 12 months prior to March 13, Brazil registered the withdrawal of USD 53.9 billion, above the record of USD 44.8 billion in 2019. They believe that the worsening scenario for Brazil and abroad, due to Covid-19 and the low-interest rate level will keep increasing the withdrawal of dollars from the country.