BCB has few options to shore up BRL

The BRL hit a historic low of 4.278 in September, prompting the promise of central bank intervention. Brazil only narrowly escaped a sub-investment grade rating from Fitch this month, but retained a negative outlook. 

The gloomy rating outlook in part reflects the lack of political consensus to address the country's fiscal deficit (now nearly 9% of GDP) and the increased risk of Presidential impeachment. 

"Meanwhile, the central bank has few options to shore up the currency. Increasing the FX swap programme only raises Brazil's fiscal debt burden, as would any further hikes to the SELIC", says Lloyds bank.

One bright spot has been the size of Brazil's foreign currency reserves, which have covered external debt. Ironically, this suggests the central bank would be loath to actually directly intervene. 

"The only options to shore up the currency are a quick switch to more fiscally minded government or capital controls. Until then, a retest of the September historic low against the USD cannot be ruled out", added Lloyds bank.