Brazil’s shock therapy against inflation

March 3, 2015

Silvio Cascione – Reuters, 3/3/2015

Brazil’s central bank’s two-day policy meeting kicks off later on Tuesday with all bets placed on a fourth straight interest rate increase, despite growing consensus that the country is headed for its worst economic recession in 25 years.

The benchmark interest rate, currently at an already-high 12.25 percent, is expected by the wide majority of 48 economists polled by Reuters to reach the highest in six years at 12.75 percent. Other increases are in the pipeline, and some say the Selic rate could climb to as much as 13.75 percent this year.

Monetary tightening is just one side of Brazil’s all-out war on price rises. Finance Minister Joaquim Levy, tasked by President Dilma Rousseff to plug a growing budget deficit, has already frozen dozens of billions of dollars in government spending, removing one of the major pressures over consumer prices in recent years.

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Brazil Mid-Month Inflation Quickens More Than Forecast

February 24, 2015

David Biller – Bloomberg Business, 2/24/2015

Brazil’s inflation in the month through mid-February quickened more than economists estimated, as the central bank continues to raise rates in the world’s second-biggest emerging market.

Inflation as measured by the benchmark IPCA-15 index accelerated to 1.33 percent from 0.89 percent a month earlier, the national statistics agency said on its website today. That was the fastest rate since February 2003 and above the median 1.30 percent forecast from 41 analysts surveyed by Bloomberg. Annual inflation sped up to 7.36 percent from 6.69 percent.

Policy makers in Brazil are caught between the fastest annual inflation in nearly 10 years and gross domestic product that analysts estimate will contract in 2015. The latter limits the scope for Finance Minister Joaquim Levy and central bank directors to tighten fiscal and monetary policy to slow above-target inflation, which is damping consumer confidence.

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Look for Income Where Yields Are High

February 19, 2015

Martin Hutchinson – Wall Street Daily, 2/19/2015

Income investing has become more and more difficult as the world’s central banks have continued pursuing zero-interest rate policies.

When short-term money pays nothing and bond yields trend steadily downward, the prices of income stocks rise until only dangerous rubbish offers a decent yield.

However, there’s one country where shares with decent yields are easy to find, and there’s no force driving stock prices to unsustainable levels. Better yet, this country has been so unpopular among investors recently that the local market can now be rated a “Buy” – with a decent yield, to boot.

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Amid Division and Paralysis, an Isolated Rousseff Confronts Scandal and Her Own Troubled Legacy

February 12, 2015

Paulo Sotero – The Huffington Post, 2/12/2015

Millions of Brazilians will sing and dance in the streets in the pre-lent festival of Carnaval starting this weekend. This year, however, there is no way to escape the harsh realities of a government paralyzed by division, scandals, and an economy on the verge of recession. The sharp increase of the inflation rate to 1.24 percent in the month of January, or 7.14 percent in the past 12 months — well above the Central Bank’s target limit of 6.5 percent — did not come as a surprise to Brazilians. According to a new survey, 86 percent of them believe prices will keep rising in 2015 as the government puts in place an austerity strategy described by President Dilma Rousseff in the first cabinet meeting of her recently inaugurated second term as “corrective” and “indispensable” to restore the country’s financial health. The expectation of continued price hikes will complicate the task of the team led by Finance Minister Joaquim Levy to stabilize the economy and restore confidence among Brazilian and foreign investors in the country’s capacity to resume sustainable growth in the years ahead. Some 90 percent of those surveyed said they expect salaries not to keep up with inflation, which implies rising social tension and trouble ahead within the government coalition led by the Workers’ Party (PT).

Brazilians’ overall perception of the economy has turned sharply negative, according to a telephone survey called Radar Ideia Popular conducted by Ideia Inteligência, with a sample of 78,222 people in 259 cities in all regions of the country from January 26 to February 1. Three quarters expect employment levels to worsen during the year in comparison with 2014, when record low unemployment served as a powerful campaign argument by President Rousseff. The negative perception on employment trends is more pronounced in the Southeastern states, Brazil’s economic powerhouse and home to the bulk of political opposition to the president, who won reelection last October by a narrow 3 percent margin: 81 percent expect the situation to get worse and only 15 percent said it will get better. A slightly more optimistic view prevails in the pro-government Northeastern region, where 30 percent see a rosier picture on employment, compared to 68 percent who are pessimistic. Nationally, there is strong pessimism on employment among the young, with two thirds of them expecting the job situation to deteriorate.

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Brazil’s Industrial Output Posts Steepest Drop Since 2009

February 3, 2015

Paul Kiernan – The Wall Street Journal, 2/3/2015

Brazil’s industrial production contracted sharply in December and finished last year with its steepest decline since 2009, as rising interest rates, weak demand and waning confidence from consumers and businesses weighed on output.

Production declined 2.8% in December from November in seasonally adjusted terms, the Brazilian Institute of Geography and Statistics, or IBGE, said Tuesday.

Economists had expected a smaller drop of 2.4%, according to the median estimate in a survey by the local Agencia Estado newswire.

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Brazil FinMin Levy An ‘Island In Sea Of Mediocrity’

January 27, 2015

Kenneth Rapoza – Forbes, 1/24/2015

Brazil’s new Finance Minister Joaquim Levy is an island in a sea of mediocrity, says ex-Central Banker Arminio Fraga in an interview this weekend with Brazilian daily Estado de Sao Paulo. The FinMin job almost belonged to Fraga. But his chosen horse didn’t win the race in October. Instead, beleaguered Workers’ Party president Dilma Rousseff won in a squeaker and replaced Guido Mantega, not a market favorite during his tenure as Finance Minister, with Levy, who is already a market favorite.

Levy, an ex-Treasury secretary under Dilma’s predecessor, Luiz Inacio Lula da Silva, is taking an sledgehammer to Dilma’s populist policies of the last four years.

Investors like life on Levy Island, but sea great white shark fins everywhere. This is no day at the beach for the Brazilian economy. High interest rates (12.25%) and high inflation (6.41%) have turned off investors. The iShares MSCI Brazil (EWZ) exchange traded fund, which basically tracks the iBovespa stock index in São Paulo, is underperforming the MSCI Emerging Markets Index year to date. Even sanctioned Russia’s equity market is doing better than Brazil.

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Brazil registers record deficit in current accounts

January 26, 2015

Lise Alves – The Rio Times, 1/26/2015

Brazil’s current accounts in 2014 registered a record deficit of US$90.948 billion, according to data released by Brazil’s Central Bank (CB) on Friday, January 23rd. The result was well above 2013’s deficit of US$81.108 billion and the highest registered since the CB started the series in 1947.

Last year’s annual deficit is equivalent to 4.17 percent of the country’s GDP, the worst result since 2001.

The Central Bank released both December 2014 results as well as results for the entire year. For December, the country’s current account, which is measured by the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers, registered a deficit of US$10.317 billion.

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