Brazil's currency rebounded sharply on Friday, posting its biggest daily percentage gain against the US dollar in nearly a decade after Central Bank President Ilan Goldfajn stepped up market intervention to pull the exchange rate back from a nearly two-year low. The Brazilian real gained more than 5 percent during the session, its biggest gain since the volatility of the 2008 global financial crisis.
The currency erased the week's losses, which were sparked by jitters about erratic policies after a crippling trucker strike and ahead of an unpredictable October election. Many investors fear these factors could set up Brazil for the next big emerging market rout. The central bank beat back a run on the real as it sold $3.75 billion worth of new currency swaps, five times the volume of recent days. On Thursday night, it pledged to offer up to $20 billion in fresh swaps through the end of next week.
Goldfajn reiterated comments from the previous day that the bank would keep providing liquidity as long as needed to the foreign exchange and interest rate markets. "All instruments are valid," Goldfajn said, adding "if there is demand, we may use reserves." So far, the central bank has not touched Brazil's $382 billion in foreign currency reserves, instead using derivatives to inject the equivalent of $14 billion in futures markets since the middle of May.
Despite Friday's currency rebound, Brazilian stocks and interest rate futures still reflected bearish views. Rate futures reversed an early drop, rising on expectations that the central bank could soon be forced to raise its benchmark rate from a record low. The Bovespa stock index slid nearly 2 percent, with losses led by exporters that benefit from a weak real.