Brazilian Real Nears All-Time Lows in 2015
The Brazilian real has been trading on a weaker note against the US dollar in the last year after depreciating by more than 40% against the US dollar.
The Brazilian real underwent massive depreciation of 1.89% against the US dollar on September 10 after the country’s credit rating went from “investment-grade” to “junk” status the night before.
A strong dollar has had an adverse impact on emerging market currencies. Monetary policy tightening could also lead to an outflow of capital from emerging economies.
“Structural reform” refers to changes in the broad fabric of the economy including the function of the government as it relates to the economy.
Although fiscal consolidation is important in the long run, countries on both sides of the development spectrum need to pace it so that they don’t derail economic growth.
Given the slowdown in several economies, countries might have to resort to currency wars. As a result, the G20 pledge will remain under scrutiny for some time.
G20 leaders recognized the divergence in monetary policies and pledged to communicate their policy decisions clearly. Monetary policy tightening in needed in some economies.
Growth in emerging economies fell in 2015, compared to 2014, because of a fall in commodity prices. This led to a hard landing for commodity exporters.
The IMF (International Monetary Fund) staff expects advanced economies to rise modestly later in 2015 and carry similar momentum into 2016.
Emerging economies present a diverse landscape as far as every nation’s key economic drivers are concerned. Commodity prices have been a key growth driver.
According to the IMF staff, weak productivity growth is primarily responsible for the slowing pace of economic growth in advanced economies.
The G20 is a forum of 19 countries and the EU that convenes to discuss policy level enhancements required for the global economy and the group.
Petrobras (PBR.A) was the biggest loser of the day, falling 6.80% on September 10. The company is at the epicenter of Brazil’s corruption scandal, which was revealed in 2014.
Brazil, Latin America’s largest economy and one of the emerging markets of the BRICS countries, was downgraded by Standard & Poor’s to junk status on September 9, 2015.
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