Brazil’s Central Bank Takes Action As Economic Outlook Worsens

August 21, 2014

Kenneth Rapoza – Forbes, 8/20/2014

Brazil’s Central Bank injected another $12 billion into the economy on Wednesday following analyst projections that this year’s GDP will print at just 0.79%.

This is the second time the Central Bank has provided some form of stimulus to lenders. In July, it provided around $21 billion to banks to induce lending.

Brazilian equities have been on a tear lately no matter what the economic fundamentals suggest. The iSharesMSCI Brazil (EWZ) exchange traded fund is up 6.07% in the past five days, clobbering the benchmark MSCI Emerging Markets index by roughly 500 basis points.

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Silva Attacks Rousseff’s Record to Start Brazil Presidential Bid

August 21, 2014

Maria Sergio Lima – Bloomberg, 8/20/2014

Marina Silva began her campaign as the Brazilian Socialist Party’s presidential candidate by criticizing incumbent Dilma Rousseff’s management of Latin America’s biggest economy while also pledging allegiance to positions taken by predecessor Eduardo Campos.

A week after Campos died in an Aug. 13 plane crash, the PSB yesterday chose Silva, 56, to take over his candidacy and tapped Beto Albuquerque to be her running mate. According to the first poll taken since Campos’s death, Silva would push the Oct. 5 election to an Oct. 26 second-round ballot.

In her first news conference as the PSB’s candidate, Silva decried the low growth, inflation (BZPIIPCY) and high interest rates that undermine the reduction of inequality and hamper Brazil’s economic development. Saying she has long “defended fiscal responsibility,” Silva repeated her commitment to inflation targeting, a floating exchange rate and the primary surplus while calling Campos a “defender of formal central bank autonomy.” She also declared that government mistakes in energy policy had proven expensive for Brazilians.

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Brazil Eases Credit Rules to Inject $4.5 Billion in Economy

August 20, 2014

Matthew Malinowski and Karen Eeuwens – Bloomberg, 8/20/2014

Brazil’s central bank has eased rules on reserve requirement for a second time this quarter in a bid to boost credit in a slowing economy.

The bank published the rules in today’s Official Gazette, altering rules for payments on non-cash deposits. The changes will channel about 10 billion reais ($4.5 billion) into credit, the bank said in a statement published on its website. The move follows the bank’s decision in July to free up 30 billion reais, according to the statement.

President Dilma Rousseff’s administration is struggling to contain above-target inflation without causing growth to deteriorate further. The central bank has kept the benchmark interest-rate at the highest level since 2012, after lifting the key rate by 375 basis points in the year through April. The moves haven’t improved the economic outlook, according to analysts surveyed by the central bank, who forecast growth will slow and inflation will accelerate this year compared to last year.

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Brazil Equities Due For Correction

August 18, 2014

Kenneth Rapoza – Forbes, 8/15/2014

Investors may be cheering the likelihood of Brazil’s incumbent Dilma Rousseff being kicked to the curb in the October presidential election, but that will not be enough to push the iShares MSCI Brazil (EWZ) exchange traded fund over $50. That’s because the fundamentals of this economy are not sound.

Brazil may have been a technical trade for a while. Or even a FIFA World Cup trade. But the Dilma trade can’t last for long. Brazil will start getting expensive. And fundamentals will return to the fore. This economy has seen its better days.

The June IBC-Br — a monthly Central Bank proxy for quarterly GDP — came in at a -1.5% month over month, ending the second quarter on a bad note. As a reminder, industrial production during that month decreased 1.4%  and broad retail sales dropped 3.6%.

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Brazil’s Swap Rates Decline After Economy Contracted in June

August 15, 2014

Filipe Pacheco – Bloomberg, 8/15/2014

Brazil’s swap rates fell after data showed the economy shrank in June by the most in 13 months, adding to speculation policy makers will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2017, a gauge of expectations for interest rates, dropped six basis points, or 0.06 percentage point, to 11.54 percent at 9:20 a.m. in Sao Paulo, and were down 12 basis points this week. The real climbed 0.2 percent to 2.2622 per dollar, extending the advance this week to 0.9 percent.

Brazil’s seasonally-adjusted economic activity index fell 1.48 percent in June from the previous month, the central bank said in a report posted on its website today, the biggest drop since May 2013. President Dilma Rousseff is struggling to revive Brazil’s faltering economy, which is forecast by analysts to grow at the slowest pace since 2009, two months ahead of presidential elections.

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Brazil July inflation slows more than economists forecast

August 8, 2014

David Biller – Bloomberg, 8/8/2014

Brazil’s consumer price increases slowed more than expected in July, as transport and food costs fell in the world’s second-biggest emerging market.

Inflation (BZPIIPCM) as measured by the benchmark IPCA index decelerated to 0.01 percent, the slowest in four years, from 0.40 percent in June, the national statistics agency said today in Rio de Janeiro. That was below all estimates from 46 economists surveyed by Bloomberg, whose median forecast was 0.10 percent.Annual (BZPIIPCY) inflation slowed to 6.50 percent, versus a median estimate of 6.60 percent.

While consumer price increases slowed more than expected, inflation at the top of the target range is hurting consumers’ purchasing power less than two months before presidential elections. President Dilma Rousseff has worked to contain inflation by capping government-regulated prices, while the central bank undertook the longest rate-raising cycle in the world of its benchmark Selic rate.

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Brazilian July Inflation Report Might Offer Some Relief, But Pressures Remain

August 6, 2014

Rogerio Jelmayer – The Wall Street Journal, 8/6/2014

Brazil’s July and August inflation reports might bring the country’s government some relief over rapidly rising prices. But the end of a seasonal food-price effect and the weak economy mean the relief will probably be only temporary.

The consumer price index is expected to rise just 0.1% in July, versus an increase of 0.4% in June, according to a survey of 14 economists by The Wall Street Journal. The 12-month inflation rate will likely stay above the 6.5% ceiling of the Brazilian central bank’s target range according to the survey, reaching 6.59% in July versus 6.52% at the end of June.

“Inflation in Brazil will present a positive picture in July and again in August, because historically food prices have been better behaved during this period. But in the last months of the year, prices will be under pressure again,” said Cristiano Oliveira, chief economist at Banco Fibra, based in Sao Paulo, who said he expects the year to end with inflation under the 6.5% ceiling.

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Real Heads for Weekly Drop as Brazil Refrains From Swap Rollover

August 1, 2014

Filipe Pacheco – Bloomberg, 8/1/2014

Brazil’s real was headed for its biggest weekly decline since January as the central bank refrained from starting a rollover of foreign-exchange swap contracts supporting the currency.

The real declined 1.3 percent to 2.2590 per U.S. dollar this week, the most since Jan. 24, after advancing 0.2 percent today as of 3:42 p.m. in Sao Paulo. Swap rates, a gauge of expectations for interest-rate moves, increased 11 basis points, or 0.11 percentage point, to 11.60 percent on contracts due in January 2017. They have climbed 36 basis points since July 25.

While the central bank sold $198.7 million of currency swaps today to bolster the real and limit import price increases, it allowed the remaining $2.81 billion of contracts maturing at the beginning of the month to expire and hasn’t called an auction to extend the maturity on $10.07 billion in swaps maturing Sept. 1. The sale of swaps has helped push the currency up 4.3 percent this year.

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Brazil Real Intervention Out of Sync With Slowdown, IMF Says

July 30, 2014

Sebastian Boyd – Bloomberg, 7/29/2014

The International Monetary Fund said Brazilian central bank President Alexandre Tombini shouldn’t shore up the real as Latin America’s largest economy stalls and inflation accelerates.

Adjusting for inflation, Brazil’s currency was 5 percent to 15 percent stronger than “implied by fundamentals and desirable policies” in 2013, IMF economists wrote in a research report published today. The real has appreciated 5.9 percent this year against the dollar while inflation accelerated to a 13-month high and economic growth slowed.

The central bank said last month it was extending through the end of 2014 a currency intervention program aimed at helping to boost the real and curb prices for imports. After nine consecutive increases in the target lending rate, policy makers held it at 11 percent on July 16 for a second straight meeting. The central bank didn’t return phone and e-mail messages seeking comment today.

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Brazil’s Longer-Term Swap Rates Rise on 2015 Inflation Outlook

July 28, 2014

Filipe Pacheco and Paula Sambo – Bloomberg, 7/28/2014

Brazil’s longer-term swap rates climbed as economists surveyed by the central bank raised their inflation forecasts for 2015, adding to speculation that policy makers will resume raising borrowing costs next year.

Swap rates on contracts maturing in January 2018 increased one basis point, or 0.01 percentage point, to 11.41 percent at 9:52 a.m. in Sao Paulo. The real was little changed at 2.2294 per U.S. dollar.

Economists increased their inflation forecast for 2015 to 6.21 percent from 6.12 percent a week earlier, according to the median of about 100 estimates in a central bank survey published today. President Dilma Rousseff is facing a combination of slower economic growth and above-target inflation as the October election approaches.

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