The year 2020 was marked by the wide devaluation of the Brazilian currency against the US dollar. The real became the currency that depreciated the most in 2020, going from around R $ 4 to almost 6 reais. What to expect in 2021?
A recent report (12/31/2020) made by the Central Bank containing the forecast for the main market metrics, pointed out that the dollar should remain at the level of R $ 5 in the year 2021. Something that may not mean much, since the report published at the end of 2019 made a serious mistake when trying to predict the exchange rate of the US currency at R $ 4.10 for the year 2020.
The Selic, the basic interest rate, controlled by the Central Bank, can be considered the main reason for the devaluation of the real. The historical decrease in the interest rate caused a lot of speculative capital to leave the country. The low returns ended up not compensating the “Brazil risk”, in the eyes of the foreign investor.
Economy Minister Paulo Guedes said that “Brazil would no longer be a renters paradise.” In fact, a lot of money allocated in the country due to high interest rates left Brazil, causing the real to depreciate.
Selic rate Source: Central Bank of Brazil.
In the same way, economist Fernando Ulrich also highlights the consequences of an excessively low interest rate in the video: The high cost of very low interest rates in Brazil. According to him, this massive decrease in the Selic rate caused a “breakdown of Brazilian macroeconomic fundamentals.”
According to Bacen, the Selic rate should rise to 3% in 2020. However, since it is a centrally controlled metric, it becomes much easier to predict. Would an interest rate of 3% be enough to raise the value of the Brazilian currency? It is difficult to answer, especially in a time of historical indebtedness as we are living.
However, it is likely that we will not have major fluctuations in the dollar this year, as resources for interest depreciation are running out and, apparently, the Selic should not reach values close to or below 0.
In addition, other factors, such as the level of government debt and the creation of a favorable business environment, will depend on political chess in 2021.
How much should the dollar go in 2021? Leave your opinion in the comments section below.
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