Brazil Central Bank Raises Rate to Highest Level In More Than 3 Years

Jeffrey T. Lewis and Paul Kiernan – The Wall Street Journal, 1/21/2015

Brazil’s central bank raised its benchmark interest rate Wednesday to the highest level in more than three years to combat expectations for surging inflation as the government hikes taxes and unwinds some price controls.

The bank lifted its so-called Selic rate by half a percentage point to 12.25% after an increase of the same size in December. In a statement, the central bank’s monetary-policy committee said the unanimous decision came after “evaluating the macroeconomic scenario and the outlook for inflation.”

The committee often provides some hints about its future intentions in the declarations announcing the rate decision, but this time the brief statement didn’t give much away, economists said.

Read more…

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

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.

Read more…

Brazil still grapples with inflation problem

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.

Read more…

Former governor offers Brazil new option for president

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.”

Read more…

Brazil’s Real weakens as Central Bank reduces rollover offering

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.

Read more…

Fitch wants Brazil’s next government to adjust policies

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.

Read more…

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

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.