The first case of COVID-19 in Brazil was recorded on February 25, and the government has been widely criticized domestically and internationally for being behind the curve. It declared a state of “public calamity” on March 20 and subsequently lifted expenditure limits. As of April 30, about 5,500 people have died, and the number of confirmed cases stands at 77,000.
Fiscal measures taken so far add up to around 6.5% of GDP. They include direct support for families, informal workers, states and municipalities, expending existing transfer programs, as well as tax breaks and credit lines via state banks.
The Central Bank of Brazil (BCB) cut rates by 75 basis points (bps) so far this year to 3.75%, an all time low. Like most other central banks, the BCB cut reserve requirements to 17% from 25% and relaxed capital buffer rules to ensure ample liquidity. They also created a lending facility for financial institutions to pledge corporate bonds as collateral. Separately, the bank also announced a $7.7 billion emergency line to help companies finance payrolls. On the dollar funding side, the BCB can rely on the Fed swap facility (for up to $60 billion). They have also been intervening in both spot and forward to contain volatility in the real but had limited success so far. We think this is less a question of capacity or commitment and more a policy decision: the BCB seems content to allow the currency to help with the adjustment give inflation trends remain contained. The BCB have continued with repo operations of sovereign bonds which has the potential to introduce up to $10 billion into money markets.