Brazil’s real hits 12 year low against US dollar

Economic uncertainty, political tension drives Brazil’s real to lowest level since April 2003

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

Brazil’s currency on Friday fell to its lowest level against the US dollar in 12 years, as a result of economic uncertainty and a growing political crisis.

The dollar hit $3.34 against the real shortly after the opening of business Friday, its highest level since April 2003 after three consecutive highs this week, the Valor Economico newspaper reported.  

The dollar spike is thought to be a market reaction to Wednesday’s announcement by the government to reduce the primary surplus target from 1.1 percent of the GDP to 0.15 percent. The prospect of increased public debt could see Brazil lose its investment grade.

A growing political crisis in which the speaker of the lower house, Eduardo Cunha, declared himself “against government” is also thought to be causing instability.

Cunha is implicated in a multibillion dollar graft scheme involving Brazil’s state-run oil giant Petrobras and some of the country’s largest construction firms that paid bribes for favorable contracts. He has been accused of soliciting $5 million worth of bribes.

The Petrobras scandal has had a huge negative effect on the economy, already in downturn following the end of the commodity boom.

Firms implicated in the scheme have had their credit lines frozen and tens of thousands of workers have been laid off as construction projects have been put on hold or scrapped.

The Brazilian economy is expected retract by 1 percent this year, with mixed opinions on whether it will return to growth in 2016, when the country will host the Olympic and Paralympic games in Rio de Janeiro.