February 27, 2020 / 4:15 PM / a month ago

UPDATE 2-Brazil's real below 4.50 per dollar for first time, central bank intervenes again

(Updates prices, adds detail)

By Jamie McGeever

BRASILIA, Feb 27 (Reuters) - The Brazilian real’s relentless decline continued on Thursday, as growing investor fears over the impact of the coronavirus outbreak on Latin America’s largest economy pushed it below 4.50 per dollar for the first time ever.

The real fell as low as 4.5010 per dollar, cementing its position as one of the worst-performing currencies in the world against the greenback this year, before the central bank intervened in the currency swaps market for the second day in a row to ease the pressure.

The Brazilian currency ended trading at new closing low of 4.4750 per dollar, meaning it has depreciated by more than 10% in just two months.

Financial markets around the world were rocked again on Thursday by the growing coronavirus fears, with the surge in volatility and collapse in risk appetite hitting emerging markets particularly hard.

Economists at Bank of America Merrill Lynch and JP Morgan cut their Brazil 2020 economic growth forecast for the second time this month, with BAML down to 1.9% and JP Morgan to 1.8%.

BAML’s economists also lowered their 2020 and 2021 forecasts for the real to 4.00 per dollar from 3.84 and 3.85, respectively.

“Positive drivers for the real have been overwhelmed by negative pressures from a stronger dollar amid risk-off sentiment and domestic growth with downside surprises,” they wrote in a note.

“The halt in the monetary easing cycle should provide some support, however the depreciation pressures given the low carry are still strong,” they added.

Brazil’s central bank dipped into the currency derivatives market on Thursday for the fourth time this month, selling $1 billion of swaps contracts following Wednesday’s $500 million sale to slow or even reverse the real’s fall.

But any relief from its interventions this month has so far proven fleeting, with some traders saying it will take much more aggressive dollar selling by the central bank to have a more lasting effect on the exchange rate.

Three-month dollar/real implied volatility rose on Thursday above 11% for the first time in almost three months, inching closer to the 14% in August last year that prompted the central bank’s first spot market dollar sales in over a decade.

Reporting by Jamie McGeever Editing by Steve Orlofsky and Alistair Bell

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