| Date | Indian Rupee | South African Rand | Brazilian Real | Indonesian Rupiah |
|---|---|---|---|---|
| 1-Jun-22 | 100 | 100 | 100 | 100 |
| 30-Sep-22 | ~92 | ~89 | ~84 | ~95 |
In early 2021, high commodity prices boosted major emerging economies, with Brazil experiencing strong export revenues. Capital flowed into Latin America as investors sought high yields in commodity-exporting nations.
However, by mid-2022, rising global inflation led to a rapid shift in sentiment. Fearing a global recession, investors began liquidating emerging market assets, triggering a substantial sell-off of currencies. In the third quarter of 2022, the South African rand fell by 11% against the US dollar, while the Indonesian rupiah fell by 5%. The Brazilian real experienced a sharp decline of approximately 16% despite interventions by its central bank and an increase in its domestic policy interest rate from 11.75% to 13.75%.
Economists highlighted two primary drivers behind this downward pressure: first, the US Federal Reserve's aggressive interest rate hikes, which drew capital back to safe-haven US dollar assets; second, a sharp slowdown in global manufacturing demand, which led to a plunge in the prices of key Brazilian commodity exports such as iron ore and crude oil.
With reference to Figure 1 and Extract A, explain one likely reason for the fall in the exchange rate of the Brazilian real.
