December 5, 2013
Matthew Malinowski & Raymond Colitt – Bloomberg, 12/05/2013
Brazil’s central bank said its current pace of interest rate increases remains appropriate to rein in consumer prices, repeating language it used to justify previous half-percentage-point increases. Swap rates rose.
Policy makers, led by President Alexandre Tombini, voted unanimously on Nov. 27 to raise the benchmark Selic rate to 10 percent from 9.5 percent, marking the fifth straight 50 basis-point increase. Monetary policy must remain especially vigilant, officials said in the minutes to their Nov. 26-27 meeting released on the bank’s website.
The central bank has raised borrowing costs by 275 basis points since April as the real dropped the most among major currencies in the past six months and deteriorating fiscal accounts sparked investor concern over a credit downgrade. Indonesia and Pakistan are the only other major economies tracked by Bloomberg that have boosted rates this year.
December 3, 2013
Brazil’s interest rate futures opened lower on Tuesday after data showed the country’s economy contracted more than expected in the third quarter, reflecting the perception that the central bank could have less room to tighten monetary policy in coming months.
Interest rate contracts maturing in January 2005 dropped 7 basis points to 10.68 percent after the government statistics agency IBGE said gross domestic product shrank 0.5 percent in the third quarter from the previous period, a steeper fall than the 0.2 percent contraction forecast by economists.
Brazil’s yield curve still priced in a 60 percent probability that the central bank will raise its benchmark Selic rate by half a percentage point in January, to 10.5 percent, according to Reuters data. However, bets on a 25-basis-point increase in the Selic have increased to 40 percent from about 30 percent late on Monday.
November 26, 2013
Bruno Lourenco – Dow Jones Business News, 11/26/2013
Brazil’s public sector accounts will begin to show improvements in 2014 as a result of recovering growth and government plans to reduce subsidies and tax breaks, Finance Minister Guido Mantega on Tuesday.
Speaking at a press conference following a meeting with local industry officials, Mr. Mantega said that stimulus measures this year had helped industry rebound from slow growth, but added that larger policy considerations now required a rollback of those incentives.
“One of the conditions so that sustainable growth can continue in the coming years is that we have solid economic fundamentals,” he said. “It’s essential that we diminish some subsidies and delay some tax breaks.”
November 25, 2013
Matthew Malinowski – Bloomberg, 11/25/2013
Brazil economists raised their 2014 key rate forecast to the highest level all year as a weakening currency complicates efforts to slow inflation.
Brazil’s central bank will raise the benchmark Selic to 10.50 percent next year, compared with the previous week’s forecast of 10.25 percent, according to the Nov. 22 central bank survey of about 100 analysts published today. Analysts also see the real at 2.30 per dollar by the end of this year, compared to last week’s estimate of 2.27.
President Dilma Rousseff’s administration has struggled to spark economic activity while taming inflation persisting near the upper limit of the central bank’s target range. Consumer prices have come under added pressure from a double-digit drop in the real in 2013. The central bank will extend the world’s biggest rate increase by raising the Selic by 50 basis points this week, according all estimates from 25 economists surveyed by Bloomberg.
November 19, 2013
David Biller – Bloomberg, 11/19/2013
Brazil’s consumer prices rose less than economists forecast in the month through mid-November as the central bank carries out the world’s biggest interest-rate increase. Swap rates fell.
Consumer prices as measured by the IPCA-15 index rose 0.57 percent from Oct. 12 to Nov. 11, the national statistics agency said in a report published on its website today. That is slower than every estimate from 35 economists surveyed by Bloomberg, whose median forecast was for a 0.65 percent increase. Annual inflation of 5.78 percent was below analysts’ 5.87 percent estimate.
President Dilma Rousseff’s government has tried to stem inflation by holding down some regulated prices as policy makers contribute to the effort by boosting interest rates. Consumer prices have risen faster than the 4.5 percent target for more than three years, and have come under added pressure this year due to the weakening currency. While the number came in lower than expected, inflation is still widespread, according to Jankiel Santos, chief economist at Banco Espirito Santo de Investimento.
November 18, 2013
Francisco Marcelino – Bloomberg, 11/17/2013
Brazil’s central bank President Alexandre Tombini didn’t see any shortage of foreign currency in the country’s spot market in the week the real declined to a two-month low.
The nation and other emerging markets face a “sell-off” because of “interest rate normalization” in advanced economies, Tombini said in a speech delivered in Santiago on the evening of Nov. 15 and published on the Central Bank of Brazil’s website yesterday. The world’s second-biggest emerging economy after China is “providing currency hedge for the private sector” with an $100-billion intervention program for 2013, Tombini said.
Brazil’s real has fallen 5 percent since Oct. 31, when the government said its budget deficit widened to the largest in almost four years on concern about a credit rating downgrade. On Nov. 13, the currency dropped to 2.3341 per dollar, the weakest since Sept. 4.
November 6, 2013
Brazil will likely post heftier primary surpluses in the final months of the year, but the government may need to exclude more investments from the final tally to meet its annual savings target, Finance Minister Guido Mantega said on Wednesday.
Mantega also said that meeting the primary surplus goal this year will depend on the fiscal results of states and municipalities.
The primary surplus, or revenues minus expenditures before debt payments, is considered a key measure of the country’s ability to repay its debt. A rapid deterioration of the primary surplus in the last few years has raised fears that rating agencies could lower Brazil’s credit rating.
November 4, 2013
Rogerio Jelmayer – The Wall Street Journal, 11/04/2013
The good news is that Brazil’s inflation rate is likely to show a dip when October figures are released; the bad news is that October’s dip is likely to be the last for several months to come.
Brazil’s 12-month inflation rate is likely to weigh in at 5.85% when October figures are released on Wednesday, according to the median estimate of 12 economists in a survey. That would represent a slight dip from 5.86% as of September and constitute the lowest 12-month rate since December of 2012.
But the victory could prove temporary. Brazil’s inflation rate is still far above the government’s 4.5% target and inflationary pressures are likely to rise, not diminish, in the next few months.
November 1, 2013
Dawn Kissi – Open Markets, 10/31/2013
An impressive amount for one of the world’s largest emerging markets, yes. However many in the know and those with knowledge of how Brazil’s Central Bank thinks and operates, sees the market intervention as business as usual for BACEN.
Since early 2013, Brazil’s Central bank has been offering approximately the same amount of USD daily intervention swaps to the market on a regular basis, according to Brazil economists and analysts. The key difference with the action taken in August is that the Bank had actually been intervening in the markets via larger auctions, less frequently and on unpredictable dates. In essence, by shifting to a regular schedule and making their plans public, BACEN has now reassured the market, as well as helped to stabilize any expectations, particularly during days of reduced liquidity, explains Paulo Vieira da Cunha, Former Deputy Governor of the Central Bank of Brazil.
According to Vieira da Cunha, “the Central Bank continued to accumulate FX reserves even as it was offering this massive volume of DI/Swaps.” Overwhelmingly, the majority of FX transactions handled in Brazil are done through the futures market, which trades at BM&F Bovespa. The country’s cash (pronto) market is a small one and often illiquid.