Brazil struggles with inflation, and expectations

Paulo Travisani – The Wall Street Journal, 7/26/2015

Brazil’s version of the Federal Reserve will almost certainly raise its benchmark Selic interest rate next week for the 16th time in just over two years in a bid to fight escalating inflation.

Trouble is, prices aren’t cooperating. Brazil’s annual inflation rate recently hit 9.25%. That is more than double the official 4.5% target and up substantially from 6.5% in April 2013, when the bank started raising rates.

That double-whammy of high rates and inflation are weighing on Latin America’s largest economy, which is contracting this year.

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Brazil Real Leads Global Gains as Support for Currency Extended

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 set for another stepp interest rate rise to tame prices

Alonso Soto – Reuters, 07/10/2013

Brazil is expected to raise its benchmark interest rate by another 50 basis points on Wednesday, maintaining the pace of monetary tightening to prevent high inflation from hampering a slow-moving economic recovery.

The Brazilian central bank, one of the first in the world to tighten monetary policy, has raised its Selic rate twice since April to 8 percent to battle high inflation that has curbed consumption and industrial output.

Even after those increases the economy remains on shaky ground with inflation at a 20-month high, leading an overwhelming majority of analysts to forecast a 50-basis-point rate increase when the central bank meets for a second day on Wednesday.

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Tombini says weak real has little impact on Brazil inflation

Raymond Colitt & Benhamin Harvey – Bloomberg, 06/03/2013

The depreciation of the real, which fell to a four-year low last week, probably will have a limited impact on Brazilian inflation, said Alexandre Tombini, the central bank president.

“Our depreciation has been more moderate than some other countries,” Tombini said yesterday in an interview at a conference in Istanbul. “As far as pass-through to inflation, provided the exchange regime is flexible, as is the case in Brazil, so the pass-through should be limited.”

The real gained 0.49 percent to 2.1313 against the dollar at 10:15 a.m. local time after sliding 4.2 percent last week, the worst performance after the South African rand among the 16 most traded currencies tracked by Bloomberg. The currency had weakened even after policy makers on May 29 unexpectedly accelerated the pace of rate increases in a bid to tame inflation that has damped an economic recovery.

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Behind the curve

The Economist, 04/20/2013

A CENTRAL bank knows it has lost control of inflation expectations when price rises become the subject of running gags. In Brazil the jokes feature tomatoes, which have suddenly become very pricey following floods, droughts and a big increase in freight costs. Social-media sites buzz with cartoons of bank robbers making off with crates of tomatoes and lottery winners bathing in purée. Even organised crime is diversifying into fruit: customs officers say that Paraguayan smugglers have added Argentine tomatoes to their Brazil-bound trade in drugs, cigarettes and knock-off electronics.

Official figures published on April 10th show that Brazil’s inflation problem goes well beyond salad. Prices rose by 6.6% during the past year, breaching the two-point tolerance band around the Central Bank’s 4.5% target. The price of more than two-thirds of the items used to calculate inflation rose in the past month. Now the mockery seems to have spurred the bank to act. On April 17th it raised the base interest-rate by 0.25 points, to 7.5%. Market watchers expect rates to hit 8.5% by the year’s end.

The belated rise comes just as it has sunk in that Brazil’s economy is failing to regain momentum after stalling last year. Fewer new jobs are being created. Industrial production and an economic-activity index widely seen as a leading indicator of GDP growth both fell in February after rising in January. Core retail sales fell for the first time in almost a decade, a particularly worrying sign given that only domestic consumption kept Brazil out of recession in 2012.

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Brazil Central Bank puts inflation at center of concerns

Tom Murphy & Rogerio Jelmayer – Fox Business/Dow Jones Newswires, 02/14/2013

The central bank revealed much of its thinking in minutes released Thursday from its March 6 monetary-policy meeting. At the meeting, the central bank held its Selic base interest rate steady at an all-time low of 7.25%. But a brief statement after the meeting hinted at possible data-based interest rate hikes in the near term.

The minutes of the meeting showed a striking level of concern for continued inflationary pressures.

The minutes stated that Brazil’s inflation problem can no longer be viewed “as a temporary condition.” The minutes said that inflation has proven resilient and may have reached “a new, and higher plateau.”

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Brazil Real closes stronger

Jeff Fick – The Wall Street Journal, 02/27/2013

Brazil’s real closed stronger against the U.S. dollar Wednesday as concerns about local inflation and Italy’s political uncertainties faded.

The real exited active trading Friday at BRL1.9722 to the U.S. dollar, stronger than Tuesday’s closing price fixed at BRL1.9829, according to Tullett Prebon via FactSet.

Brazil’s currency tracked gains by the euro, seen as a key barometer for the real, as global markets rebounded from this week’s selloff on inconclusive results from the Italian elections. Investor appetite for riskier assets such as emerging-market currencies recovered after Italy successfully sold about $8.5 billion of bonds, although at the highest yields since October 2012.

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Brazil real stronger in thin volume, with Central Bank absent

Tom Murphy – The Wall Street Journal, 13/02/2013

SAO PAULO–The Brazilian real ended active trading Wednesday slightly stronger against the Friday close in thin post-holiday volume.

The real ended active trading at BRL1.9642 to the dollar, stronger from the Friday close of BRL1.9698, according to Tullett Prebon via FactSet. Brazilian markets were closed Monday and Tuesday for the annual Carnival festivities.

Traders said there was little pressure from either side of the market Wednesday, with the real drifting to a stronger position on U.S. dollar inflows from foreign investors, mainly in Brazilian stocks, and from overseas bond issues by Brazilian companies.

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Brazil Nov. inflation surprises every economist surveyed

David Biller, Andre Soliani – Bloomberg Businessweek, 12/07/2012

Brazil’s inflation unexpectedly accelerated as central bank President Alexandre Tombini reiterated his plan to hold interest rates at their current level, while investors bet on more cuts next year.

Prices as measured by the benchmark IPCA index rose 0.6 percent in November, the national statistics agency said today in Rio de Janeiro, more than any economist forecast in a survey by Bloomberg. Swap rates jumped.

Tombini told reporters yesterday that the bank is standing by its monetary policy strategy after traders rocked markets with bets he will resume cutting borrowing costs. The bank yesterday released its minutes to last week’s monetary policy meeting and pledged to keep the Selic rate at a record low 7.25 percent for a prolonged period.

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No more free lunch – As interest rates fall, spreads and profits are coming under pressure

The Economist, 10/20/2012

ON OCTOBER 10th Brazil’s Central Bank cut its policy interest rate for the tenth time in just over a year, to 7.25%. The move surprised analysts, since rates were already historically low and inflation above the centre of the monetary-policy committee’s 2.5-6.5% target. Neither economic growth, likely to finish the year at an anaemic 1.5%, nor the currency, which tends to rise with rates as return-seeking foreign investors pile in, are supposed to play a part in its deliberations. But most analysts now believe that its decisions are taken with an eye to boosting growth and weakening the currency, and that unless inflation threatens to break the 6.5% barrier, rates will stay low for some time.

For now, subdued global demand means that inflation is unlikely to slip its leash. But in the longer term the government will have to rein in public spending and push through difficult reforms if it wants Brazil to grow faster than 3-4% a year without fuelling inflation. Recent moves to cut payroll taxes, limit public-sector pay rises, reduce energy costs and improve a woeful transport infrastructure should help to raise this distinctly modest economic speed limit. They have also convinced many that the president, Dilma Rousseff, will do whatever it takes to save the bank from having to hike again.

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