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Brazil's real slid almost 1.5% on Wednesday, its biggest fall in four months, hitting a new low of 4.58 per dollar and brushing off an announcement form the central bank that it will intervene in the currency swaps market on Thursday as expectations surged that more interest rate cuts are on the way.

The auction of up to $1 billion FX swaps contracts will be the central bank's sixth intervention in the derivatives market in recent weeks, but the announcement failed to slow the real's slide, far less reverse it.

The real closed below 4.58 per dollar for the first time ever in its biggest daily decline since Nov. 8 last year. Its losses against the dollar so far this year exceed 12%.

Traders noted that the deteriorating economic outlook for 2020, exacerbated in recent days by coronavirus fears, has raised the likelihood that the central bank will cut interest rates again, probably at its March 17-18 meeting.

"The real is getting hit on rate cut expectations, and has been actually been underperforming all year," said one hedge fund manager in Sao Paulo.

Interest rate futures on Wednesday fully priced in a quarter percentage point cut in the central bank's benchmark Selic rate to 4.00% later this month.

Economists at Citi and JP Morgan, among others, expect a half-percentage point cut, and also cut their 2020 economic growth forecast to 1.6%.

Official figures on Wednesday showed that Brazil's economy grew by 1.1% last year, its slowest pace of growth in three years. Economy Minister Paulo Guedes said the government will lower its 2020 growth forecast next week, but not below 2%.

Against a backdrop of sluggish growth, low inflation and a likely fall in interest rates, the real's decline has accelerated in recent weeks.

Some traders say the only thing that will turn its fortunes around is central bank intervention in the spot market selling dollars.

"This isn't working. There's a lack of support (from the central bank)," said one senior trader in Sao Paulo, referring to the central bank's apparent reluctance to sip into its FX reserves and likely move soon to cut interest rates.

Copyright Reuters, 2020

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