A panic in Brazil’s financial markets has laid bare plummeting investor confidence in the fiscal policy of President Luiz Inácio Lula da Silva, with his leftwing administration under intense pressure to fortify the public accounts of Latin America’s largest economy. The real dropped to a record low against the US dollar on Wednesday, leading to aggressive central bank interventions to support the currency, in a sell-off that also hit share prices and pushed up government borrowing costs.
Two further increases of the same magnitude are set for early next year. Members of the government, meanwhile, play down concerns the economy is running too hot. Guilherme Mello, a high-ranking figure in the finance ministry, acknowledged this year’s GDP forecast was slightly above the economy’s potential, but said overheating will be avoided if a predicted slowdown to 2 per cent in 2025 proves correct.