Brazil’s Central Bank may change currency program to manage currency’s value

May 8, 2014

Paulo Trevisani – The Wall Street Journal, 5/7/2014

The Brazilian central bank may be about to change its currency policy widely credited with stabilizing the exchange rate during last year’s turmoil in emerging markets, according to market observers.

Since October 2013 the bank has been holding pre-announced auctions of futures contracts to provide a way out for investors in case their bets on the Brazilian real went sour.

The idea was to offer predictable hedge options, so investors would be less afraid of holding the local currency at a time when the Federal Reserve was mulling a wind down of the bond-buying policy that beefed up emerging-market currencies for years.

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Brazil still grapples with inflation problem

May 5, 2014

Rogerio Jelmayer – The Wall Street Journal, 5/5/2014

Inflation surged again in Brazil during April, another worrying development for a central bank that’s seen as being keen to stay out of October’s presidential election.

Many economists believe the central bank would like to wrap up a cycle of interest rate hikes that has lasted more than a year – at least until after the elections are over. Raising rates during the election cycle could be seen as damaging to President Dilma Rousseff, who is seeking re-election for a second term. Further hikes could choke off still weak economic growth.

The central bank has already raised its key interest rate nine times over the last year, and the Selic now stands at 11%, up from 7.25% in early 2013. The bank has hinted that it’s preparing to pause, perhaps as early as its next meeting on May 27 and 28.

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Former governor offers Brazil new option for president

May 5, 2014

Joe Leahy – The Financial Times, 5/4/2014

Eduardo Campos provides a straightforward prognosis for what is ailing Brazil.

The former governor of Brazil’s northeastern Pernambuco state, who is running for presidential elections in October, says Brazil’s economy may be slowing, prices rising and the currency slipping. But none of this is worse than what many other countries are facing or anywhere near the problems that Latin America’s largest economy has itself overcome in the past, such as runaway inflation.

“What we do have is a crisis of confidence,” he said in an interview, eschewing a tie because it is a public holiday. “Society has perceived that things have stopped getting better and some things have started to get worse again.”

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Brazil’s Real weakens as Central Bank reduces rollover offering

May 5, 2014

Filipe Pacheco – Bloomberg, 5/5/2014

Brazil’s real fell the most among major dollar counterparts after the central bank reduced the volume of foreign-exchange swap contracts that it offered to roll over, signaling eased support for the currency.

The real dropped 0.9 percent to 2.2407 per U.S. dollar at 3:16 p.m. in Sao Paulo, the lowest level on a closing basis since April 25. The currency posted the biggest decline among 16 major currencies tracked by Bloomberg.

The central bank rolled over in an offering all 5,000 of currency swap contracts due June 2 and worth $247.1 million today, compared with 10,000 available in April auctions. To support the currency and limit import price increases, Brazil also sold $198.4 million of foreign-exchange swaps.

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Fitch wants Brazil’s next government to adjust policies

April 10, 2014

Walter Brandimarte – Reuters, 4/10/2014

Fitch Ratings on Thursday said it expects Brazil’s next government to support the country’s credit rating by making policy adjustments to improve its fiscal performance and boost investor confidence.

In a conference call with investors, Fitch analyst Shelly Shetty said low growth rates and a deterioration in fiscal accounts are the firm’s main concern about Brazil, which remains rated at BBB with a stable outlook.

Her remarks suggest Fitch is willing to give the benefit of the doubt to the next Brazilian president, to be elected in October. They also may help to allay fears Brazil would soon suffer another sovereign downgrade, following Standard & Poor’s decision to cut the country’s rating to near junk level last month.

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“It is time to restructure the tax system in Brazil rather than simply fix its flaws”

April 9, 2014

Instituto Millenium, 4/8/2014

Year in, year out, the urgently necessary tax reform continues to be delayed. The complexity of Brazil’s tax system erodes industrial competitiveness and affects the poorest sections of society, who need better quality public services and lower taxes. Collection increases every year. According to the “tax meter,” in 2014 alone, Brazilian society has paid more than BRL $400 billion to tax authorities. Worse yet, they do not see returns in goods and services and cannot understand where the money goes.

To discuss the complexities of the tax system, the Milennium Institute interviewed José Roberto Afonso, economist and researcher at the Brazilian Institute of Economics (Ibre/FGV). An expert on the subject, José Roberto does not believe it is possible to twerk the current system and make it efficient, “What we need is another tax system, after all, the current one is almost 50 years old, and the world and Brazil have changed.”

Read the full interview in Portuguese here.

Brazil economists see faster inflation and slower growth in 2014

April 7, 2014

Matthew Malinowski – Bloomberg, 4/7/2014

Brazil economists raised their 2014 inflation forecast for the fifth straight week and cut their growth estimates as a food price shock curbs purchasing power in the world’s second-largest emerging market.

Brazil’s inflation this year will accelerate to 6.35 percent, compared with the previous week’s forecast of 6.30 percent, according to the April 4 central bank survey of about 100 analysts published today. Analysts also cut their 2014 growth estimates to 1.63 percent from 1.69 percent a week ago.

President Dilma Rousseff’s administration is struggling to spur growth amid above-target inflation. Brazil’s central bank last week lifted the key rate for the ninth straight time after a drought drove up food prices. Policy makers in an accompanying statement signaled they will observe economic progress before deciding on the future path of monetary policy.

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Investment inflow in Brazil remains strong, says central banker Tombini

March 13, 2014

Merco Press News, 3/13/2014

Tombini told attendants at an event in São Paulo sponsored by Goldman Sachs Group Inc that the pace of Brazil’s economic expansion this year should be similar to 2013’s growth rate. He said that the impact of monetary policy is “cumulative” and “comes with a lag time,” adding policies at the current moment must stay “especially vigilant” of inflation.

Steady foreign investment has helped cover Brazil’s growing current account deficit, alleviating pressure on the foreign exchange market. Brazil’s trade deficit has increased recently as the appetite for imports, especially fuel, remains strong and overseas trips by Brazilian tourists taking advantage of a still strong currency.

Rising interests rates have made Brazil more attractive to foreign investors by offering a higher return. The central bank is widely expected to raise its benchmark interest for a ninth straight time in April to 11.00%, the highest since early 2012.

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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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Brazil’s Petrobras seeks to sell at least $3 billion debt

March 10, 2014

Rogerio Jelmayer & Matthew Cowley – The Wall Street Journal, 3/10/2014

Brazilian oil company Petróleo Brasileiro SA jumped into the global bond market Monday as it continues to borrow heavily to meet its enormous investment plan.

Petrobras, as the firm is known, plans to raise at least $3 billion from the sale of six sets of dollar-denominated bonds, including fixed-rate bonds and floating-rate debt, according to a term sheet provided by a banker. The fixed-rate bonds will mature in three, six, 10 and 30 years, while the floaters will mature in three and six years, the sheet said.

According to another person familiar with the transaction, total demand for the bonds has reached around $12 billion so far.

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