Brazil gives the real a boost

The Brazilian currency had opened stronger Friday, then weakened steadily as markets began to digest Federal Reserve Chairwoman Janet Yellen’s comments Thursday evening that the USA economy is strong enough to support higher interest rates.

With investors fretting about the future of Latin America’s largest economy, Brazil’s main stock index, Bovespa suffered early losses of as much as 2% on Thursday but rebounded and was up 0.2% in late-afternoon trading.

Bank loans delinquent for at least 90 days in Brazil remained in August at their highest in nearly two years, the central bank said on Wednesday, as a widespread downturn and rising borrowing costs kept companies and consumers from staying current on their debt.

The Brazilian real pushed further into record-low territory Thursday despite two interventions by the country’s central bank meant to prop up the beleaguered currency.

A political crisis threatens President Dilma Rousseff. According to Reuters, he did not rule out did not selling part of Brazil’s $371 billion foreign reserves.

Some economists warned the central bank risked putting the real under more pressure if it does not raise interest rates at its next scheduled rate-setting meeting on October. 21.

The crisis has fueled concern that another credit rating agency will follow Standard & Poor’s example and cut Brazil’s rating to junk, forcing many global funds to dump its bonds from their portfolios.

Roussef’s efforts to shore up deteriorating government finances will face a major test on Wednesday, when Brazil’s Senate votes on whether to overturn presidential vetoes aimed at averting a surge in public spending.

“Economic activity in Brazil continues to be influenced by the macroeconomic adjustment now underway”, which is “necessary and essential” to balance public accounts and exercise greater control over the inflation rate, it added.

The U.S. Commerce Department said Friday the country’s gross domestic product grew at a 3.9% seasonally adjusted pace in the second quarter, faster than the department’s previous estimate of 3.7%.