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Brazil real plummets as stocks close down nearly 15%

13 MARCH 2020

The Sao Paulo stock exchange closed down 14.78% on Thursday, its worst day in a terrible week as Brazil struggled to deal with a market rout caused by the fallout of the new coronavirus pandemic. The Brazilian real also plummeted to below five to the dollar for the first time ever, underlining the heavy toll the pandemic is taking on Latin America’s biggest economy, while traders reeled at US President Donald Trump’s shock ban on travel from mainland Europe. The latest bad news could be particularly damaging for Brazilian President Jair Bolsonaro, a Trump admirer, and his economy minister Paulo Guedes, who had said a week ago the real would only fall below five to the dollar “if we really mess up.”

The Sao Paulo stock exchange suspended trading twice during the session in a bid to halt the plunge, but the sell-off continued, giving the Ibovespa index the seventh-worst day in its history and a total loss of 26% for the week. Sharp losses on Monday and Wednesday had also triggered automatic trading halts.

Oil and airline stocks were again hit especially hard. State-run oil company Petrobras lost 20.5%, and airlines Gol and Azul closed down 36% and 33%, respectively. The Brazilian real hit 5.028/$ in early trading, the first time it has crossed the threshold of 5/$ since it was launched in 1994. It later recovered some ground as the central bank intervened to prop it up with currency auctions, and was trading at 4.77/$. Bolsonaro had urged Brazilians not to panic over the virus, saying its severity was “overstated”.

But the pandemic hit close to home when the government confirmed the president’s communications chief, Fabio Wajngarten, had tested positive for the virus. Bolsonaro himself has undergone a test and is awaiting the results, said his son Eduardo, a legislator. The Brazilian leader, travelling with Wajngarten, recently made an official trip to the US. Both men met on Saturday with Trump and vice-president Mike Pence. But Trump said he was “not concerned,” and the White House said there was no need for the president to be tested. The pandemic has hit the Brazilian economy hard, largely because of the country’s close ties with China, its biggest trading partner and top destination for its main commodity exports. The government cut its 2020 economic growth forecast on Wednesday by 0.3 percentage points, to 2.1%, and warned the fallout of the virus could end up shaving off even more.