Central Bank of Brazil lowers bank reserve requirements in bid to boost liquidity

July 29, 2014

Arvid Ahlund – Central Banking, 7/28/2014

The Central Bank of Brazil (CBB) has lowered reserve requirements for banks in a move to inject 45 billion reais ($20 billion) into the country’s stagnating economy ahead of presidential elections later this year.

The CBB, which raised interest rates by 375 basis points to 11% in the year to April to fight above-target inflation, said on Friday the new measure “aimed at improving the distribution of liquidity in the economy” following a “recent moderation in credit” and a “decrease in the level of risk in the financial system”.

The change effectively allows banks to use as much 50% of the reserves it holds against deposits on new loans or the acquisition of loan portfolios, potentially translating into 30 billion reais ($13.4 billion) in additional credit creation.

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Brazil Sugar Production Up, but Don’t Expect It to Last

July 29, 2014

Alexandra Wexler – The Wall Street Journal, 7/24/2014

Sugar-industry executives and analysts are calling for the biggest decline in Brazil’s sugar output over a decade. But the numbers coming in from the harvest are showing that the world’s No. 1 producer is churning out sugar well ahead of last year’s pace. What gives?

The apparent paradox can be explained by dry weather in Brazil, where the top-growing regions experienced the worst drought in decades from January through April. Ongoing dry conditions are making it easier for growers to harvest cane, inflating the early harvest totals. The blistering pace of the harvest means that mills are likely to run out of sugar cane to crush far sooner than is typical.

That means Brazil’s sugar harvest will be short, and likely sweet for prices.

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Brazil is set to become the world’s biggest soy producer — and that might be bad news for its forests

July 28, 2014

Gerry Hadden – Public Radio International, 7/28/2014

It’s covered by millions of acres of industrial farms and deep green soy fields. If this year’s harvest — the best in Brazilian history — comes in as expected, Brazil is poised to surpass the US and become the world’s largest soy producer. Soy beans have boosted Brazil’s economy and even brought President Dilma Roussef to Mato Grosso to congratulate farmers in person.

But in a nearby indigenous village, no one is celebrating. The boom in soy production coincided with a spike in deforestation. And Hiparidi Toptiro, an activist from the indigenous Xavante people, says local soy farmers are willing to do anything for a chunk of the forest where the Xavante live.

“Throughout our lands, people show up wielding false deeds to the area,” Toptiro says.  “And they have begun to plant soybeans inside our lands. They pay off one of our villages with a little money, which complicates the relationship between all of us in the reserve. “ He calls it dividing and conquering with trinkets.

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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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Brazil Economists Cut 2014 Growth Call for Ninth Straight Week

July 28, 2014

Matthew Malinowski – Bloomberg, 7/28/2014

Brazil economists reduced their 2014 growth forecast for the ninth consecutive week, as policy makers seek to spur demand without further stoking above-target inflation.

Brazil’s gross domestic product will expand 0.90 percent this year, compared with the previous week’s forecast of 0.97 percent, according to the July 25 central bank survey of about 100 analysts published today. The economists’ growth forecast has dropped by nearly half since their 1.63 percent estimate from May 23.

President Dilma Rousseff is torn between the fastest annual inflation in 13 months and weakening growth as she campaigns for re-election. The central bank said on July 24 its strategy does not contemplate a lower key rate as above-target consumer prices will remain resistant. The next day, policy makers announced they would loosen deposit requirements to free up 45 billion reais ($20.2 billion) in consumer credit.

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Economy In Gutter, Brazil More Expensive Than Europe

July 28, 2014

Kenneth Rapoza – Forbes, 7/27/2014

Brazil’s economy might be growing near zero, and it’s currency isn’t as strong as it was in the heyday of the U.S. housing bubble of 2008, but that hasn’t stopped the country from becoming more expensive than the entire euro zone. In fact, according to The Economist magazine’s latest edition of the Big Mac index, Brazil’s currency is overvalued, and is third behind mega rich nations like Norway and Switzerland.

Brazil is the most expensive emerging market nation, and the locals are feeling it.

According to the magazine’s Big Mac index, the Brazilian real is overvalued by 5.86% as of July 23, more so than it was in 2009.  The Brazilian real is worth R$2.23. But it used to be a lot stronger. In July of 2008, it hit a strong R$1.55.  Despite a weaker currency, Brazil’s cost of living is on the rise.  For those living there, it’s a cause of frustration.  This is still very much a country where roads flood in the rain in major cities like São Paulo, and World Cup and Olympic quality cities like Rio de Janeiro have a whopping 500,000+ living in squalor in hillside slums.  The views are nice, but the poverty, the crime, the violence and the lackluster government services to those stuck there remain a national embarrassment.

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Brazil Eases Reserve Requirements to Inject $13.5 Billion

July 25, 2014

David Biller and Francisco Marcelino – Bloomberg Businessweek, 7/25/2014

Brazil’s central bank is making available an estimated 30 billion reais ($13.5 billion) with measures including reduced reserve requirements as it looks to boost economic activity.

The bank is allowing as much as 50 percent of time deposit requirements to be used on new loans and the acquisition of loan portfolios, the monetary authority said in a statement on its website today. It also increased the number of banks eligible to sell their portfolios, and those able to use up to 20 percent of reserve requirements to grant loans qualifying under development bank BNDES’s program to sustain investment, known as PSI.

President Dilma Rousseff’s administration is seeking to rein in above-target inflation without strangling growth. Policy makers left rates on hold for the second straight monetary policy meeting ending July 16 following the longest rate-raising cycle in the world, as expectations for 2014 economic growth plummeted. Minutes from the meeting that signaled the bank would leave rates on hold have been “compromised” by today’s measures, according to Andre Perfeito, chief economist at Gradual Investimentos.

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Brazil to boost credit to counter economic slowdown

July 25, 2014

Walter Brandimarte – Reuters, 7/25/2014

Brazil’s central bank on Friday announced measures to boost credit in the country’s ailing economy, one week after keeping its benchmark interest rate at its highest level in over two years to fight inflation.

The bank said in a statement it was freeing up an estimated 30 billion reais ($13.5 billion) in the financial system through changes to banks’ reserve requirements.

The move “aims at improving the distribution of liquidity in the economy” given a recent slowdown in credit and relatively low levels of bad loans, the bank said.

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Brazil Leads Latin American Ecommerce Growth, Becoming Amazon’s Biggest Foreign Market

July 25, 2014

Robert Schoon – Latin Post, 7/24/2014

Latin America, led particularly by Brazil, is continuing rapid growth in its online economy, according to a new study by Internet Retailer. And the boom in ecommerce is good news not only for Latin American Internet retailers, but also for some prominent U.S.-based companies as well — especially Amazon.com.

According to the new 2014 edition of the “Latin America 500,” an annual report by ecommerce research and analysis firm Internet Retailer, Latin America, as a whole, remains the world’s second fastest-growing ecommerce market — only trailing behind China. And Brazil is leading the way, thanks to high Internet penetration rates, a booming market for affordable mobile devices, and an increasingly digital culture.

Internet Retailer ranked the top 500 web merchants in Latin America by sales and 128 other data points — like sales growth rates, web traffic, average checkouts, social media prominence, etc. — tracking retailers in 12 of the most digitally active Latin American countries, including Argentina, Bolivia, Brazil, Chile, Colombia, El Salvador, Mexico, Peru, Uruguay, and Venezuela.

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Dour Outlook For Brazil May Be Exaggerated: A Contrarian Take

July 25, 2014

Jim Cahn – Nasdaq, 7/25/2014

With the World Cup having put it in the spotlight, Brazil is getting a lot of critical attention, including reports that the country is unprepared to host the 2016 Olympics. Between those two events are the pivotal October elections, which will determine if South America’s largest country is going to stick with populist policies and price controls or start doing some very unpopular things to mitigate inflation and revitalize the stagnating economy.

Its domestic growth production is restrained in the 2% range, its foreign imbalances have grown, the currency is being hammered and even the often slow-to-react ratings agencies have cut Brazil from BBB to BBB-.

But frankly, it’s not all that bad. In fact, the outlook for certain sectors is quite good, especially consumer goods, finance and infrastructure.

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