Brazil’s Real Continues Slide Amid Fresh Downgrades and Economic Fallout

For Brazil’s real, the last few months have been no carnival. Natasha Lala of OANDA | Solutions for Business group, gives an overview of how the former global hotspot fell out of favor—and how those corporates that work with the currency can respond.

The Brazilian real continues to see a spectacular fall from grace. In 2015, the real depreciated by 40 percent versus the U.S. dollar, as lower demand for commodities further squeezed Brazil’s economy, which relies heavily on commodity exports. This further hurt Brazilian businesses, which were already feeling the pinch of a stubborn recession and tough austerity measures.

So far, this year has not been much different. Just last week, Brazil’s credit rating was downgraded for the 3rd time, as Moody’s relegated the country’s bonds to junk status.

On top of this, with major politicians still under investigation for corruption, or exiting office altogether, Brazil inspires little confidence that either the real or the economy will stabilize in the near future. At the end of 2015, Brazil’s Supreme Court officially cleared the way for impeachment proceedings against President Rousseff, putting proposed economic reforms in further doubt.

These problems aside, companies exposed to Brazil and its currency are unlikely to shut their doors as a result of the difficulties there. For many businesses, the Brazilian economy is simply too large to abandon.  And even though domestic consumption continues to rise in Brazil, 2016 promises to be a difficult year for corporate treasurers to manage revenues and earnings denominated in the Brazilian real.

For starters, the country has a tricky tax jurisdiction requiring corporations that want to move capital out of Brazil to justify why the money should leave the country. On top of this, the country’s proposed 2016 budget currently calls for a “financial transaction tax,” which would levy a 0.2 percent fee on activities like currency exchanges and transfers.

What’s more, volatility is likely to continue in light of the country’s questionable economic fortunes (it’s still unclear what impact this summer’s Olympics in Rio will have, if any), making it difficult for treasurers, CFOs and financial controllers to get an accurate read on the real at a given point in time.  Currency volatility in one part of the world tends to have a trickle down effect on the integrity of all the exchange rate data on which financial executives rely for accounting, forecasting and balance sheet activities. To be prepared for currency volatility in Brazil and other areas of the world, companies need access to an integrated data platform with the latest rate information, analytics tools, and a continuously updated FX data feed.