April 19, 2012
AFP/France 24, 04/19/2012
Brazil’s central bank again cut its benchmark interest rate by 75 basis points to 9.75 percent — the sixth rate cut in the past eight months in an effort to boost the sluggish economy.
The bank’s monetary policy committee justified the new cut — which mirrored last month’s cut of 75 basis points — by citing the “limited risk” to further inflation.
“This cut could mark the end of the cycle of rate reductions that began in August, when the rate stood at 12.5 percent. The rate could remain unchanged for some time,” said Carlos Kawall, chief economist at private Banco J. Safra, on Wednesday.
April 17, 2012
Andre Soliani – Businessweek, 04/16/2012
Alexandre Tombini. Source: Businessweek
No central banker in the world’s top 10 economies has surprised analysts as frequently as Brazil’s Alexandre Tombini.
Since taking office 15 months ago, Tombini set interest rates lower than economists expected in three out of 10 policy meetings, including an August reduction that all 62 analysts surveyed by Bloomberg failed to anticipate. Russia’s central bank, the second most unpredictable, defied economists in three out of 14 rate decisions in the same period.
So far, Tombini has been vindicated. Inflation in Brazil, at 5.24 percent in March, is easing at a pace faster than analysts forecast. While investors have speculated that Tombini may be yielding to political pressure to lower rates, his gloomy assessment of the world economy and risk-taking may prove correct, according to Citigroup Inc.’s Dirk Willer. Tombini will cut the benchmark rate by three-quarters of a point to 9 percent tomorrow, according to a Bloomberg survey of 55 analysts.
April 11, 2012
Josue Leonel & Gabrielle Coppola – Businessweek, 04/10/2012
Brazil’s real fell the most in three weeks as the government warned it may take further steps to weaken the currency and concern mounted that global economic growth is slowing.
The real fell 0.9 percent to 1.8336 per U.S. dollar at 6 p.m. in Sao Paulo, from 1.8179 yesterday, the biggest decline since March 19. The yield on the Brazilian interest-rate futures contract due in January 2014 fell three basis points, or 0.03 percentage point, to 9.15 percent.
The real extended losses after Finance Minister Guido Mantega said during an event today in Sao Paulo that Brazil will keep taking steps to prevent its currency from strengthening against the dollar and hurting manufacturers. Slower imports in China and lower-than-forecast job growth in the U.S. fueled speculation global growth is flagging.
April 5, 2012
Andre Soliani and Matthew Bristow – Businessweek, 04/05/2012
Brazilian consumer prices rose less than any analyst expected in March, pushing annual inflation to a 17-month low and raising the possibility of more government stimulus measures. Yields on interest-rate futures fell.
Prices, as measured by the IPCA index, rose 0.21 percent, down from 0.45 percent in February, the statistics agency said in a report distributed in Rio de Janeiro today. The increase was smaller than forecast by all 50 analysts surveyed by Bloomberg, whose median estimate was for a gain of 0.37 percent. Annual (BZPIIPCY) inflation slowed to 5.24 percent from 5.85 percent.
Since August, central bank president Alexandre Tombini has reduced the benchmark Selic rate five times as the priority to revive economic growth outweighed concern inflation would remain above target. Finance Minister Guido Mantega said the “outstanding” inflation result creates room for the government to step up measures to boost growth, two days after President Dilma Rousseff ordered about 65 billion reais ($35.5 billion) in stimulus measures.
March 16, 2012
Samantha Pearson – Financial Times, 03/15/2012
Ask football players on opposing teams to explain the final score of the match they have just played and they will surely give different explanations for the same result.
It is worth bearing in mind this logic when reading Brazil’s latest and somewhat confusing central bank minutes.
Last week policymakers unexpectedly decided to cut the benchmark interest rate 75 basis points to 9.75 per cent, by five votes against two.
January 24, 2012
Carla Simoes and Andre Soliani – Bloomberg, 01/23/2012
Brazil will make room for a more “flexible” monetary policy as the government seeks to ensure economic growth of at least 4 percent this year, Finance Minister Guido Mantega said.
President Dilma Rousseff will cut enough of its 2012 budget to ensure the government meets its target of a budget surplus before interest payment of 139.8 billion reais ($79.7 billion), Mantega told reporters yesterday. He said the government will keep in place a “solid” fiscal policy even as it expands public investment this year to fuel growth, adding the size of the budget cut will be announced in mid-February.
“The budget cut will be enough to meet the fiscal target, keeping the current direction that makes room for a more elastic monetary policy,” Mantega said after a Cabinet meeting with Rousseff. We will “give continuity to the change in the fiscal and monetary policy mix we implemented in 2011, in which monetary policy can be more flexible and the fiscal policy more rigorous.”
December 7, 2011
Márcio Garcia – Financial Times, 12/06/2011
Chart 1. Financial Times
A decade ago, when Jim O’Neill coined the Bric acronym, he was harshly criticized for including Brazil. 2001 had been a bad year for the economy, with contagion from the Argentine crisis, our own energy crisis and political disarray in the governing coalition. When the central bank governor wrote to the finance minister to explain the breach of the upper limit of the inflation target band, he said inflation should trend down as shocks of the kind that hit Brazil that year were not to be expected in the future. Little did we know what was coming.
In 2002, Brazil suffered a significant sudden stop, as investors, domestic and foreign, fled the country in fear of Lula, the leftwing presidential candidate, then perceived as market-unfriendly. The Brazilian real lost half of its value against the dollar (see chart 1) and inflation rose from 7.7 per cent in 2001 to 12.5 per cent in 2002 as the economy stalled (see chart 2).
But from 2003, O’Neill’s choice of Brazil would be vindicated. Lula trashed his party’s economic programme and kept the sound macroeconomic framework inherited from the Cardoso administration, based on the tripod of primary budget surpluses, inflation targeting and a floating exchange rate. China helped. Brazil rode the commodities wave, supplying farm produce and iron ore. Chart 1 shows the narrow correlation between commodity prices, as measured by the CRB index, and the nominal exchange rate: as commodities prices rose, the value of the BRL increased. This combination also helped to control inflation, as higher commodity prices in USD were mitigated by the appreciation of the BRL. From 2003 until the 2008 international crisis, the government undertook major reform of the public sector balance sheet, doing away with many of the exchange rate mismatches that had haunted Brazil for decades. Domestic debt indexed to foreign currencies was eliminated, foreign debt was reduced and foreign exchange reserves accumulated (see chart 3).
December 7, 2011
Joe Leahy – Financial Times, 12/06/2011
So Brazil could be headed for a technical recession after it reported an admittedly very slight contraction in economic growth for the third quarter of 0.04 per cent compared with the previous three months. Is there any reason to panic?
Says Capital Economics:
“Given that leading indicators suggest that the economy may contract by around 0.3 per cent quarter on quarter in the current [December] quarter, the outturn means that the Brazilian economy may be in a technical recession. The central bank’s … activity indicator contracted in October, while November’s manufacturing PMI suggests that the industrial sector remains in recession.”
October 27, 2011
The Economist – from the print edition, 10/29/2011
FOR much of the last century inflation was as prominent a feature of Brazilian life as football. It was finally tamed, first by the Real Plan of 1994 involving a new currency and fiscal measures, and then from 1999 by requiring the Central Bank, which was granted operational independence, to set interest rates to meet an inflation target. Since 2005 that target has been 4.5%, plus or minus two percentage points. So the Central Bank surprised everyone in August when it cut its benchmark rate by half a point (to 12%) even though inflation was then at 6.9%. On October 19th, the bank did the same again. So is the government of President Dilma Rousseff, in office since January, giving priority to other goals, such as sustaining growth and preventing the overvaluation of the currency, rather than keeping inflation low? And has the Central Bank lost its independence?
No, say officials, who cite two sets of reasons for the rate cuts. First, having overheated last year, the economy stalled in the third quarter, partly as a result of earlier interest-rate rises and modest fiscal tightening. The consensus forecast is for GDP to expand by only 3.3% this year. Second, the bank argues that inflation was boosted by one-off factors, such as big rises in municipal bus fares and a shortage of ethanol (widely used as vehicle fuel in Brazil). In the minutes of its August meeting, the bank’s monetary-policy committee stated that the deteriorating outlook for the world economy and falling commodity prices would put downward pressure on prices in Brazil, allowing inflation to reach the 4.5% target in the course of next year.
There are indeed signs that inflation is starting to fall. But the government’s critics argue that by starting to cut so early and so aggressively, while inflation is still almost three points above the target, the bank has damaged its hard-won credibility. As a result, inflation expectations for the years ahead are rising. Marcelo Carvalho, an economist at BNP Paribas, reckons inflation will only fall to 5.5% by 2013 (and that assumes the bank hikes rates again). The minimum wage is due to rise by 14% or so in January and unemployment remains low. The biggest problem is that some prices and wages are indexed to last year’s inflation, a hangover from the past. “What worries me is that this is a slippery slope: the thinking seems to be that inflation of 5% or 6% is fine,” says Mr Carvalho.
October 3, 2011
Edward Hadas and Rob Cox – Reuters/New York Times, 09/25/2011
President Dilma Rousseff of Brazil. A decision by Brazil's central bank to lower the benchmark interest rate was the main catalyst for a slide in the real's value. Pedro Ladeira/Agence France-Presse - Getty Images
Even great companies can make failure into a tradition. That seems to have happened at UBS, Yahoo and Hewlett-Packard. The prognosis for all three isn’t good.
The two tech firms have an obvious similarity. In recent weeks, both chucked out relatively new chief executives without much in the way of notice or obvious rationale. They are also alike in having fallen from being clear sector leaders — H.P. in hardware and Yahoo in the Internet world — to strategic drifters.
UBS isn’t so different. Its chief executive resigned over the weekend after the bank lost track of a $2 billion bet on a supposedly low-risk trading desk. UBS, like H.P. and Yahoo, is a once-confident institution still in search of a coherent strategy.