The Brazilian Real Experienced Its Worst Depreciation Since 2020

The Brazilian real experienced its sharpest depreciation against the dollar in 2024, driven by investor concerns over the government’s ability to address Brazil’s growing fiscal deficit and public debt.

The most significant depreciation occurred in November and December, amid doubts about President Lula’s government’s capacity to manage the country’s economic challenges.

On the final trading day of 2024, the real saw a slight appreciation of 0.22% against the dollar, thanks to an intervention by Brazil’s Central Bank, which sold $1.815 billion to defend the currency.

USD/BRL

However, the USD/BRL ended the year with a 27.35% depreciation, marking its largest drop since 2020, when the economy was heavily impacted by the pandemic.

The Brazilian Real Compared

At the close of the final trading session, the exchange rate was 6.1787 reais per dollar, both for buying and selling, reflecting a slight gain compared to Friday. The depreciation in 2024 was the most significant since 2020, when the real fell 29.33% due to the pandemic-induced economic slowdown.

It was also the second-largest drop since 2015, when the real lost 48.3% during Brazil’s political crisis that led to the impeachment of President Dilma Rousseff and a two-year recession.

Among the G20 countries, the Brazilian real was the worst-performing currency of 2024 and the sixth-worst globally, surpassed only by the currencies of South Sudan (-72%), Ethiopia (-56.5%), Nigeria (-41.7%), Egypt (-39.2%), and Venezuela (-30.8%).

Currency Auctions and Lower Reserves

The real started the year at 4.85 reais per dollar, maintaining that level for much of 2024, but the most substantial depreciation occurred in the last two months due to growing uncertainty over the government’s fiscal policies. Despite promises from President Lula’s administration to eliminate Brazil’s primary fiscal deficit, it has yet to achieve this goal.

With the $1.815 billion auctioned on Monday, the total reserves auctioned by the Central Bank in December reached nearly $33 billion in an attempt to stem the currency’s decline. The fall in the real is attributed to investor mistrust in Lula’s fiscal policies, which have struggled to make significant progress since he took office in January 2023.

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.