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 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 Trims 2014 Growth Forecast

July 23, 2014

Jeffrey T. Lewis – The Wall Street Journal, 7/22/2014

The Brazilian government cut its economic growth forecast for 2014, reflecting the sluggish expansion already seen so far this year.

The country’s gross domestic product will grow 1.8% in 2014, compared with the 2.5% projected by the government earlier this year, according to a report released Tuesday. The government also raised its forecast for inflation for the year, to 6.2% from 5.6%.

The estimate for the central government’s income excluding transfers to states and municipalities was raised by 714.5 million reais ($332.7 million), to 1.095 trillion reais, after the estimate for transfers was cut.

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Brazil’s Longer-Term Swap Rates Decline as GDP Outlook Worsens

July 21, 2014

Filipe Pacheco – Bloomberg, 7/21/2014

Brazil’s longer-term swap rates fell as economists lowered their 2014 growth estimate to below 1 percent for the first time, adding to speculation policy makers will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2021 declined three basis points, or 0.03 percentage point, to 11.58 percent at 9:53 a.m in Sao Paulo, the lowest on a closing basis since Sept. 24. The real was little changed at 2.2257 per U.S. dollar.

Economists reduced their growth forecast to 0.97 percent from 1.05 percent a week earlier, according to the median of about 100 estimates in central bank survey published today. Policy makers held the target lending rate at 11 percent for a second straight meeting on July 16 after nine consecutive increases to curb accelerating inflation.

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Brazil set to hold interest rates, signal long pause

July 16, 2014

Alonso Soto – Reuters, 7/16/2014

Brazil will likely keep interest rates steady for the second straight time on Wednesday and signal it will leave them there for some time even after inflation hit the ceiling of its target range.

At its last meeting on May 28, the central bank’s monetary policy committee halted its year-long rate-hiking campaign and held its benchmark Selic rate at 11 percent to give a respite to an economy that is again flirting with recession.

Disappointing growth data will likely keep the central bank, led by Alexandre Tombini, from raising interest rates for the rest of 2014 even though inflation is expected to stay high for the next two years.

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BRICS Fight Waning Clout With $150 Billion Deal at Summit

July 15, 2014

Raymond Colitt and Arnaldo Galvao – Bloomberg, 7/14/2014

The leaders of five of the world’s largest emerging markets will showcase a new currency reserve fund and development bank this week. Critics say neither is enough to revive the group’s waning clout.

Brazil, Russia, India, China and South Africa, known as the BRICS, will approve the creation of the $100 billion reserve fund and $50 billion bank at a July 15-16 summit in Brazil’s coastal city of Fortaleza and the capital Brasilia, President Dilma Rousseff and other officials said last week. Negotiators are still trying to agree on shareholding in the bank, according to three Indian officials who requested not to be named because the talks were not public. India wants member stakes to be based on contributions not on economic weight.

The initiatives are born out of frustration with a lack of participation in global governance, particularly in the World Bank and International Monetary Fund, said Arvind Subramanian, senior fellow at the Peterson Institute for International Economics. The measures aren’t big enough to boost growth or cohesion in the group as foreign investor sentiment sours and member states focus on issues close to home, such as Brazil’s elections, the conflict in Ukraine and new economic policy plans in India.

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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 »


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