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 Real Drops Most Among Major Currencies on Growth Outlook

July 7, 2014

Filipe Pacheco – Bloomberg, 7/7/2014

Brazil’s real fell the most among major currencies as economists surveyed by the central bank lowered their 2014 growth outlook for a sixth straight week.

The real declined 0.4 percent to 2.2218 per U.S. dollar at 12:10 p.m. in Sao Paulo, the biggest drop among 16 major currencies tracked by Bloomberg. Swap rates on contracts maturing in January 2017 fell three basis points, or 0.03 percentage point, to 11.40 percent.

Economists reduced their growth forecast for this year to 1.07 percent from 1.10 percent a week earlier, according to the median of about 100 estimates in a central bank survey published today. Moody’s Investors Service said in a research report published today that Brazil’s slower growth and accelerating inflation are credit-negative.

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The challenge today is to create a new round of economic reforms

July 7, 2014

Persio Arida – Exclusive for Folha de S. Paulo, 6/29/2014

Persio Arida

Persio Arida

 

In 1984, ten years before the Real Plan, I participated in a discussion at MIT about the Larida Plan, named after an economic stabilization proposal that André Lara Resende and I had outlined in an academic paper.

The Larida Plan, based on the creation of an indexed currency – the ORTN (readjustable obligations of the National Treasury) pro-rata, which then became rebranded under the Real Plan as URV (Real Value Unit) – was daring. The promise was to make inflation decrease abruptly without resorting to price freezes or artificiality.

During the seminar, one of the commentators, an important American economist, expressed a doubt that seemed unreasonable to me at the time, but that today, many years later, has become factual. Read the rest of this entry »


Brazil’s inflation to ease if interest rates hold steady: Tombini

July 2, 2014

Alonso Soto and  – Reuters, 7/1/2014

Interest rates at current levels should bring Brazil’s inflation back to the center of the government target, central bank chief Alexandre Tombini said in an interview published on Tuesday, signaling he has no plans to raise borrowing costs anytime soon.

Tombini reiterated that inflation should end below the target’s ceiling of 6.5 percent this year, adding that food inflation, which is blamed for a surge in prices earlier this year, is already “dissipating.”

“I would like to reiterate that if monetary conditions are maintained, inflation would tend to converge toward the target over the relevant horizon for monetary policy,” Tombini told the central bank’s internal news outlet “Conexão Real.”

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Two decades of the Real, the currency that helped Brazil trust financial stability

July 2, 2014

MercoPress, 7/2/2014

Many Brazilians still have painful memories of the period in the late 1980s and early 1990s, when people rushed to the supermarkets as soon as they received their salaries, because prices could increase rapidly the following day.

Once a month, families would embark on a shopping expedition worthy of Christmas Eve, and in many homes, large fridges were kept to stock up on food. And minutes after an increase in petrol prices was announced, cars crowded into filling stations, creating huge snaking queues.

As inflation rose to reach more than 2,000% a year (in 1993), life became totally unpredictable. Planning holidays, weddings, or any major event became almost impossible.

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Brazil Real Leads Global Gains as Support for Currency Extended

June 25, 2014

Filipe Pacheco and Matthew Malinowski – Bloomberg, 6/25/2014

Brazil’s real climbed to a one-month high and led gains among major currencies after the central bank said it will extend daily intervention for at least another six months as part of an effort to curb inflation.

The real rose 0.8 percent to 2.2075 per U.S. dollar at 2 p.m. in Sao Paulo, the strongest level on a closing basis since May 21. The rally was the biggest among the 31 most-traded currencies tracked by Bloomberg.

The central bank said in a statement yesterday after the close of markets that it will keep offering $200 million in currency swaps each business day through at least Dec. 31 and provide additional dollars as needed. The program supporting the real and limiting import-price increases had been scheduled to expire at the end of this month.

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Brazil’s Real Drops After Rousseff Keeps Lead in Election Poll

June 20, 2014

Julia Leite – Bloomberg News, 6/20/2014

Brazil’s real dropped for the third time in four sessions after President Dilma Rousseff held her lead in an election poll.

The real lost 0.4 percent to 2.2370 per dollar at 1:11 p.m. in Sao Paulo as most major currencies fell against the greenback. Swap rates on contracts maturing in January 2021 rose four basis points, or 0.04 percentage point, to 11.92 percent. The Ibovespa stock benchmark dropped the most in three weeks as state-run companies slumped.

“The voting simulations probably disappointed those who were hoping for the opposition to gain more ground,” Vladimir Caramaschi, the chief strategist at Credit Agricole in Sao Paulo, said in a phone interview. “It’s felt more in the stock market, but it could impact the currency a bit.”

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Brazil in 2014: Will Rousseff change course?

January 7, 2014

Paulo Soter0 – CNN, 12/30/2013

Editor’s note: Paulo Sotero is director of the Wilson Center Brazil Institute. The views expressed are his own. This is the latest in the ‘14 in 2014‘ series, looking at what the year ahead holds for key countries.

Three consecutive years of disappointing economic performance, with an average GDP growth of barely 2 percent and deteriorating fiscal and external accounts, should be enough to convince President Dilma Rousseff to move Brazil away from the inward policies and micromanaging style she introduced after succeeding her popular mentor, Luiz Inácio Lula da Silva, in January 2011. The same mindset has affected Brazil’s international affairs, with similar results.

A leader with little appetite or patience for diplomacy and focused by necessity on domestic challenges, Rousseff implemented a modest foreign policy agenda when compared to her predecessor and became the first Brazilian president to fire a foreign minister, over a preventable incident. There are both negative and positive incentives for Rousseff to change course as she faces reelection in October 2014.

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Brazil swap rates surge on industrial output gain; Real declines

August 2, 2013

Blake Schmidt & Josue Leonel – Bloomberg, 08/01/2013

Brazil’s swap rates climbed the most in six weeks as higher industrial production spurred speculation that the central bank will sustain the pace of increases in borrowing costs to curb inflation.

Swap rates due in January 2015 rose 25 basis points, or 0.25 percentage point, to 9.84 percent in Sao Paulo, the biggest increase since June 18. The real dropped 1.2 percent to 2.3042 per U.S. dollar, the weakest level since March 2009.

Industrial output rose 1.9 percent in June from a month earlier, exceeding the 1.3 percent median forecast of economists surveyed by Bloomberg. Policy makers raised the target lending rate by a half-percentage point July 10 to 8.50 percent, the third advance this year. The central bank said in minutes of the meeting that it is appropriate to maintain the pace of increases in borrowing costs to curb inflation.

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Wasn’t a weaker currency supposed to help Brazil?

June 4, 2013

Kenneth Rapoza – Forbes, 06/03/2013

When the Brazilian real was strengthening like gangbusters against the dollar, all the way to R$1.55 back in July of 2008, the government both loved it and hated it.

They loved it because it meant the world loved Brazil and Brazil, with its nagging (and misplaced) inferiority complex, was mighty proud of its strong currency.  Fast forward to the Lehman Brothersand pending fall out in late 2008-09 and the strong currency became a curse. It became part of the “currency war”, a term made quite popular over the last two years by Brazilian Finance Minister Guido Mantega.

The Fed and European Central Bank were weakening their currencies.  Investors were looking for yield were finding it in places like Brazil. Money poured in. The real kept gaining on the dollar and euro.  Mantega and big businesses complained.  They couldn’t be competitive at R$1.70. They needed R$2.00 to $1, everyone was told.

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