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Sao Paulo - The Brazilian real has dipped to its lowest level against the dollar in four years, hurt by market expectations of higher US interest rates.
On Monday, the Brazilian currency closed at 2.4169 to the greenback, trading above the 2.4 mark for the first time since March 3, 2009.
It closed on Tuesday at 2.394.
"The dollar will continue on this downward trend, " said Luiz Gustavo Pereira, an analyst at Corretora Futura in Sao Paulo.
"There is this situation with the probable hike in US interest rates and all emerging countries will continue to suffer," he added.
The weakening of the real comes as Latin America's economy is experiencing anemic growth and rising inflation.
And anticipation of tighter US monetary policy starting next month is making the dollar more attractive on international markets.
Higher US interest rates would mean a reduction in liquidity injections by the Federal Reserve Board through its monthly purchases of Treasury bonds.
"And this will also influence the decision of the Brazilian Central Bank," Pereira said.
The Brazilian Central Bank, concerned about rising inflation, hiked its base rate to 8.5% in July, up from its historic low of 7.25% early this year.
Now it will have to take into account the direction of US interest rates and its impact on capital flows in emerging economies such as Brazil, the analyst said.
Brazil's 12-month inflation reached 6.27% until July, close to the 6.5% upper limit of the government target.
"Currencies of other emerging countries are also losing ground against the dollar," said Wellington Ramos, an analyst with Austin Rating in Sao Paulo.
"Due to risk aversion, investors are pulling out their assets to place them in more profitable instruments," he added.
For this reason, Pereira believes the Central Bank may keep its interest rates high to attract capital.
In recent years, the real had strengthened, trading up to 1.5 to the dollar, a rate which was welcomed neither by the government, nor by exporters concerned about the harmful impact on the competitiveness of Brazilian goods.
But today, a weaker real makes imports more expensive.
The Brazilian industrial sector, meanwhile, is opposed to high interest rates, which it says could discourage investments at a time of slow economic growth.
On Monday, Finance Minister Guido Mantega said the government could act to prevent the rising dollar from impacting inflation.
A few days ago, he said he did not believe the real would slide to 2.7 to the dollar, although he conceded that markets remained volatile.
"We don't know where the exchange rate will stop," Mantega said.
The Central Bank has intervened on several occasions in recent weeks to support the real, which dropped 17% against the dollar this year.
On Monday, it said Central Bank chief Alexandre Tombini was paying close attention to the movements and would not hesitate to offer protection and liquidity to the market.
Tuesday, the bank held an auction that injected $4bn into the market with a pledge of future buyback.
