Brazil, Mexico forced to act to stop FX rout

23-Sep (FT) — Another day of steep losses for the real has finally forced Brazil’s central bank to step in to stop the rot.

The BCB said on Wednesday that it will auction $2bn worth of new currency swaps today and tomorrow – in effect restarting a programme that was scrapped earlier this year – after the real plunged more than 2.3 per cent to a new low of R$4.1441 per dollar.

…But the ferocity of the recent sell-off, triggered in part by Standard & Poor’s move this month to downgrade the country to junk and exacerbated by a fast growing domestic political crisis, has spooked even the most battle-harden Brazil watcher.

Despite the size of the swaps programme, analysts are not convinced it will be enough to stablise the real, which has fallen more than 35 per cent against the greenback this year. The bulk of this loss has come over the past 8 weeks.

…Mexico’s central bank also stepped up its defense of the peso after the currency tumbled 1.6 per cent to 17.1493 per dollar.

That’s its fifth day of losses and puts it back towards the record low of 17.3056 it reached at the end of August.

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