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Brazilian Real Suffers Heavy Fall after Central Bank Rate Decision

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Brazilian real falls to historic low

The dollar-real currency pair, which is inversely related to the Brazilian real, rose by 1.5% on January 21, 2016. The pair rose to a historic high of 4.17 after the Brazilian Central Bank’s decision to maintain the current interest rate. The currency pair fell slightly before the end of the day as crude oil, Brazil’s major export, bounced back. The pair ended the day at 4.16.

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Brazilian Central Bank maintains rates at 14.3

The Brazilian Central Bank’s monetary policy committee decided to keep the benchmark interest rate unchanged at 14.3% on January 21, 2016. Six members on the committee voted to maintain current rates while two of them voted for an increase of 0.5%. The federal tax revenues were published later in the day, which came out above the forecasts at 121.5 billion Brazilian real. The Energy Information Administration published the crude oil inventories at 4 million barrels, which was above the projections and resulted in a rebound in crude oil prices.

Impact on the market

Looking at ETFs in the developing markets, the iShares MSCI Brazil Capped ETF (EWZ) fell by 2.6% on January 21, 2016. In contrast, the iShares China Large-Cap ETF (FXI) rose by 0.68%.

Brazilian ADRs (American depositary receipts) were also trading on a mixed note. Petroleo Brasileiro SA Petrobras (PBR) is an oil multinational. It rose by 1.4% on the day as crude prices staged a rebound. On the other hand, Vale (VALE) and Gerdau (GGB) fell by 5.6% and 7.3%, respectively.

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