Central Banker Tombini says Brazil well-prepared for QE pullback

April 10, 2014

Pedro Nicolaci da Costa – Wall Street Journal, 4/10/2014

Brazil has built up enough domestic buffers against rapid shifts in capital flows to allow it to withstand a pullback from unconventional interest rate policy in the world’s largest economies, Central Bank Governor Alexandre Tombini said.

Mr. Tombini agreed in part with Indian central bank chief Raguram Rajan, who argued during a Brookings Institution speech that aggressive monetary easing in advanced economies had made life harder for developing countries.

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Brazil election jitters may hit investment in 2014

April 9, 2014

Alonso Soto & Luciana Otoni – Reuters, 4/8/2014

Brazil’s presidential vote will likely delay some investment decisions this year but spending on infrastructure is expected to remain strong, a senior government official told Reuters on Tuesday.

Although President Dilma Rousseff is the favorite to win the October 5 general election, many investors could withhold funds until the next government outlines its plans for the following four years, which could hamper the country’s already slow economic growth.

“It is obvious that businesses will delay some investments until after the election to have more clarity,” said the official, who asked not to be named because he is not allowed to speak publicly.

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Brazil March inflation faster than every economist estimate

April 9, 2014

David Biller – Bloomberg, 4/9/2014

Brazil’s consumer prices rose more in March than economists estimated, increasing pressure on the central bank to extend the world’s longest cycle of interest rate increases. Swap rates rose.

Inflation as measured by the benchmark IPCA index accelerated to 0.92 percent from 0.69 percent in February, the national statistics agency said today in Rio de Janeiro. That was faster than forecast by all 40 analysts surveyed by Bloomberg, whose median estimate was for an 0.85 percent rise. Annual (BZPIIPCY) inflation quickened to 6.15 percent from 5.68 percent, marking its fastest rate since July.

The government’s popularity dropped in two polls posted in the past fortnight as Brazilians express concern that prospects for faster inflation will crimp their purchasing power. Policy makers have responded to consumer price pressures by boosting benchmark Selic borrowing costs in every meeting over the past 12 months while signaling that tightening may be coming to an end. Today’s data raise the likelihood that interest rate increases aren’t yet over, economist Enestor dos Santos said.

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Brazil raises key rate for ninth straight meeting to 11%

April 3, 2014

Matthew Malinowski & Raymond Colitt – Bloomberg, 4/2/2014

Brazil signaled that the world’s longest rate tightening cycle might be coming to an end and raised borrowing costs for a ninth straight meeting.

The bank’s board, led by its President Alexandre Tombini, today voted unanimously to raise the Selic rate to 11 percent from 10.75 percent, as forecast by all 57 economists surveyed by Bloomberg. Policy makers have raised borrowing costs by 375 basis points, or 3.75 percentage points, in less than a year.

The bank at its last meeting in February signaled that tightening might soon end by halving the pace of rate increases. Brazil in the last year has increased borrowing costs more times than any other central bank worldwide, with the total increase in borrowing costs trailing only Turkey among major economies. Policy makers’ efforts have also been helped by the second-biggest currency gain among emerging markets since January.

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Brazil sees inflation accelerating even with rising key rate

March 27, 2014

Matthew Malinowski & Raymond Colitt – Bloomberg, 3/27/2014

Brazil’s central bank said inflation will accelerate in 2014 for a second straight year even if the bank continues its yearlong increase of the benchmark interest rate.

Consumer prices will rise 6.2 percent this year if policy makers raise the rate by 25 basis points to 11 percent, the quarterly inflation report published today shows. The inflation forecast compares with a 5.6 percent estimate in December’s report. Policy makers also said Brazil’s economy will expand 2 percent in 2014, following 2.3 percent growth in 2013.

The central bank since April has lifted its key rate the most in the world after Turkey as increased public spending and a weaker currency fan above-target inflation. The worst dry spell in decades prompted economists this month to elevate their 2014 consumer price forecasts to the highest in more than a year.

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Brazil’s biggest drought in decades also worsens interest rate outlook

March 25, 2014

Kenneth Rapoza – Forbes, 3/25/2014

Brazil’s worst drought in 50 years will have more than an impact on tomato prices (which rose over 20% recently).  Inflation is now seen cracking through 6% again and that means the Central Bank will likely have to rethink its desired plans to cut interest rates in the second half.

On Monday, the Central Bank’s Focus survey of economists had inflation forecast to hit 6.28% this year.

Last Friday’s release of the March IPCA-15 wholesale price inflation index confirmed the drought’s impact on food prices. The drought was so bad in Brazil’s semi-arid northeast that food inflation is expected to remain for most of the year now.  As it is, Brazil’s food prices have risen almost 20% year to date.

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Brazil economists raise 2014 inflation and selic forecasts

March 24, 2014

Matthew Malinwoski – Bloomberg newsweek, 3/24/2014

Brazil economists raised their 2014 key rate and inflation forecasts, after dry weather caused food prices to surge in the world’s second-largest emerging market.

Brazil’s inflation will accelerate to 6.28 percent this year, compared with the previous week’s forecast of 6.11 percent, according to the March 21 central bank survey of about 100 analysts published today. Analysts expect the bank to raise the benchmark Selic to 11.25 percent by December, compared with a forecast of 11 percent last week.

President Dilma Rousseff is seeking to tame above-target inflation and stimulate economic growth that has been slow to gain traction. Finance Minister Guido Mantega this month met with business leaders to lure investment, while the central bank has lifted the key rate by 350 basis points since April. Inflation is coming under renewed pressure from a jump in food prices and a real that has declined the second-most among major currencies in the past year.

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Lew seeks to repair Brazil ties in first trip to Latin America

March 18, 2014

Kasia Klimasinska & Raymond Colitt – Bloomberg Businessweek, 3/17/2014

U.S. Treasury Secretary Jacob J. Lew discussed ways to expand trade and investment with his Brazilian counterpart as he sought to repair ties with Latin America’s biggest economy.

“Both countries recognize the great potential benefit from working together to meet the challenges of generating jobs, sustaining growth and helping support macroeconomic stability,” Lew said after meeting with Brazilian Finance Minister Guido Mantega yesterday in Sao Paulo. He said U.S. companies are seeking to provide financing and expertise for Brazil’s plans to modernize infrastructure.

Lew, in his first Latin American trip since he took office a year ago, also met with Brazilian central bank President Alexandre Tombini before traveling to Mexico City, where he will hold talks today with President Enrique Pena Nieto and top economic officials. He also discussed the crisis in Ukraine and highlighted the need for the U.S. to pass legislation to expand the voting rights of emerging markets in the International Monetary Fund.

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Brazil’s stimulus may not be sustainable, Fraga says

March 13, 2014

Cristiane Lucchesi & Adriana Arai – Bloomberg, 3/12/2014

The Brazilian government’s mix of economic-stimulus programs are inflationary and probably can’t last, according to former central bank President Arminio Fraga.

“The policy mix now in place may not be sustainable,” said Fraga, the founder of hedge fund and private-equity firm Gavea Investimentos Ltda., which was bought by JPMorgan Chase & Co.’s Highbridge Capital Management unit in 2010.

Since the 2008 financial crisis, President Dilma Rousseff’s administration has tried to boost demand by “pumping credit,” with state-owned banks playing “a very important role,” Fraga said in an interview in Rio de Janeiro, adding that the central bank aggressively lowered interest rates even without low or stable inflation. “That came back with a vengeance,” said Fraga, who is advising Aecio Neves, the likely opposition candidate facing Rousseff in the Oct. 5 presidential election.

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Brazil’s swap rates decline as food inflation slows; real falls

March 12, 2014

Filipe Pacheco – Bloomberg Businessweek, 3/12/2014

Brazil’s shorter-term swap rates dropped as a report showed food and beverage prices rose at a slower pace in February, adding to speculation that the central bank will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2016 fell six basis points, or 0.06 percentage point, to 12.05 percent at 12:08 p.m. in Sao Paulo. The real depreciated 0.1 percent to 2.3665 per U.S. dollar.

The national statistics agency reported today that food and beverage prices climbed 0.56 percent in February after increasing 0.84 percent in the prior month. To curb inflation, policy makers lifted the target lending rate at their meeting last month by 25 basis points to 10.75 percent, half the pace of the previous six decisions.

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