Fed Decision Sends Brazil's Currency Lower

When the Federal Reserve announced it had a plan to taper U.S. economic stimulus measures, shockwaves were felt across financial markets overseas. Anticipation of the Fed's action has sent Brazil's currency tumbling in one of the world's most important emerging markets.

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DAVID GREENE, HOST:

We'll begin NPR's business news with collapsing currencies.

Over the past several months, the focus of financial markets has been the Federal Reserve's plan to phase out or taper some of the extraordinary measures it has taken to stimulate the economy.

Just the idea that the Fed might start dialing back on stimulus spending is rippling through financial markets overseas. For instance, investors who once poured money into emerging markets, like Brazil and India, are suddenly much more cautious.

We'll hear about India's problems in a moment. But first, NPR's Lourdes Garcia-Navarro explains how anticipation of the Fed's action has sent the currency tumbling in Latin America's biggest economy.

LOURDES GARCIA-NAVARRO, BYLINE: In a bid to stop the slide of the real against the dollar, Brazil last week launched a $60 billion currency intervention. While other emerging economy currencies have also been hit hard, Brazil is in a particularly difficult spot.

Luiz Rabi is an economist with Serasa Experian.

LUIZ RABI: (Foreign language spoken)

GARCIA-NAVARRO: Brazil was one of the economies that wasn't adequately prepared to face what's happened in the American markets, he says. Brazil already had high inflation, there's no space to absorb price increases due to the devaluation of the currency, he says.

Brazil has struggled to keep its inflation within target levels and a devalued real means imports are more expensive, which in turn means people will pay more for things like gasoline, which is subsidized by the government, but also bread. Brazil is one of the top wheat importing countries in the world.

Rabi says despite the new government measures though, the real probably won't regain its previous strength anytime soon.

Lourdes Garcia-Navarro, NPR News, Sao Paulo.

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