The real was the currency that fell the most against the US dollar this week. The 2.1% drop is larger than, for example, that of the Argentine peso, which fell 1.2%. It also outperformed the 0.9 percent depreciation of the Russian ruble even though the eastern European country is at war.
Currencies in countries like China, South Africa and Poland also depreciated against the dollar. On the other hand, the Colombian peso and Chilean peso appreciated over the week.
The Real’s negative performance can be linked to the statements made by President Luiz Inácio Lula da Silva fiscal responsibility, central bank independence and inflation targeting. The speeches are added to proposals such as the spending amendment to the constitution, which sees the hole in the spending ceiling of nearly R$145 billion.
In the short term, the appreciation of the dollar may have a direct impact on fuel prices, an area where the Treasury Secretary Fernando Hadadahas endeavored to outline a course of action regarding a possible federal tax refund.
Appreciation of the real goes through measures of fiscal responsibility
In an interview with the program “West without Filter”., economist Luís Artur Nogueira explained that “Lula didn’t understand that in order to be ‘socially successful’ he had to be successful in public accounting”. The expert also said that “in a situation without an autonomous central bank, the president’s bad remarks would push the dollar above R$6”.
Among other things, Nogueira argued that the market would feel safe investing in Brazil if there were a “workable” tax rule that would replace the constitutional spending cap.