Brazil’s real drops sharply on Levy comments

January 30, 2015

Bruno Federowski and Bernadette Baum – Reuters, 1/30/2015

The Brazilian real weakened about 2.5 percent against the dollar on Friday after Finance Minister Joaquim Levy suggested the government had no intention of keeping the currency stronger than the market would naturally dictate.

Speaking to investors and business leaders at an event in Sao Paulo on Friday, Levy suggested the real was overvalued and signaled the government will not work to keep the currency from sliding.

The real added to early losses shortly afterward, dropping as low as 2.68 to the dollar.

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Brazil’s Real Drops Most Among Major Currencies on GDP Outlook

January 13, 2015

Paula Sambo – Bloomberg News, 1/12/2015

Brazil’s real fell the most among major currencies after analysts surveyed by the central bank lowered their growth forecast for Latin America’s largest economy.

The currency slid for the first time in five days, dropping 1.5 percent to 2.6737 per dollar at the close of trade in Sao Paulo. The decrease was the biggest among 16 major currencies tracked by Bloomberg. Swap rates, a gauge of expectations for changes in borrowing costs, climbed 0.1 percentage point to 12.58 percent on the contract maturing in January 2017.

Analysts reduced their forecast for gross domestic product growth in 2015 to 0.4 percent from 0.5 percent, according to the median of about 100 estimates in a weekly central bank survey published today. Evidence of a stalled economy increases the challenges for Finance Minister Joaquim Levy, who has pledged to impose more rigorous fiscal discipline.

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Brazilian Real Declines to Nine-Year Low Amid Economic Weakness

December 15, 2014

Paula Sambo – Bloomberg, 12/15/2014

Brazil’s real fell to a nine-year low as a report indicated that Latin America’s largest economy unexpectedly contracted in October, adding to concern that President Dilma Rousseff will struggle to revive growth.

The currency slid 1.2 percent to 2.6872 per dollar at 4:24 p.m. in Sao Paulo, the weakest level on a closing basis since March 2005. Swap rates, a gauge of expectations for changes in borrowing costs, climbed 0.14 percentage point to 12.69 percent on the contract due in January 2017.

The real dropped as the central bank reported today that the seasonally adjusted economic index, a proxy for gross domestic product, fell 0.26 percent in October from a month earlier. That was worse than every estimate from 27 economists surveyed by Bloomberg, whose median forecast was for a 0.25 percent expansion. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, remained the highest among 16 major currencies.

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Brazil, Uruguay move away from US dollar in trade

December 3, 2014

RT, 12/3/2014

Brazil and Uruguay have switched to settling bilateral trade with local currency to stimulate turnover, bypassing the US dollar.

Payments in the Brazilian real and Uruguayan peso started on Monday. The agreement was signed on November 2 by the head of Brazilian Central Bank Alexandro Tombini and his Uruguayan counterpart Alberto Grana. Both countries believe such a move would strengthen trade across Latin America.

“The agreement was the result of long negotiations between the countries belonging to Mercosur [the common market of South American countries – Ed.], as well as the global strategies of BRICS,” RIA quotes Carlos Francisco Teixeira da Silva, Professor of International Relations at the Federal University of Rio de Janeiro.

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Navigating Brazil’s Path to Growth

December 3, 2014

Otaviano Canuto – The World Post, 11/9/2014

Brazil’s macroeconomic management will face four major immediate challenges in the near future. The response to them will be strengthened if we could have some indication of how to steer the Brazilian economy back to a growth route.

A first major challenge will be the upward realignment of domestic regulated prices, in a context of still high inflationary pressures. Since the second half of 2012, inflation has remained near or above 6.5 percent p.a. — the upper limit of the annual inflation target. The main inflationary factors in recent years — services and non-tradable goods — appear to be slowing down at the margin, but the ongoing correction of regulated prices, until recently repressed, has still some way to go.

Difficulties to decelerate inflation will be compounded by another potential challenge, namely, the pressure toward local currency depreciation that will likely accompany the process of normalization of U.S. monetary policy, with some increase in their interest rates expected for 2015. There will be at least higher volatility of interest and exchange rates, which tends to lower the attractiveness of Brazilian securities. In fact, one can assume that the Brazilian Real would have already reached more devalued levels today were it not for the foreign currency hedge transactions massively offered by the Central Bank since the “taper tantrum” of last year (the notional value of which has reached US$ 100bn).

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Brazilian Real Advances on Outlook for Rousseff’s Economic Team

November 12, 2014

Filipe Pacheco – Bloomberg, 11/10/2014

Brazil’s real rose for a second day on speculation President Dilma Rousseff will appoint an economic team that will revive growth and on wagers the U.S. Federal Reserve will avoid an early increase in interest rates.

The currency gained 0.3 percent to 2.5522 per dollar at the close of trade in Sao Paulo after dropping 3.2 percent last week. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, fell 0.04 percentage point to 12.61 percent on the contract maturing in January 2017. The real advanced amid optimism that the next finance minister will move away from policies that helped lead Brazil into a recession in the first half of the year. Today’s increase was the biggest among 16 major currencies tracked by Bloomberg after the South Korean won.

“There has been a lot of expectation that a new economic team will be able to restore growth,” Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo, said in a telephone interview.

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The Market Votes on Brazil

October 28, 2014

The Wall Street Journal, 10/27/2014

Brazilians had their democratic say on Sunday, voting narrowly to re-elect President Dilma Rousseff of the left-leaning Workers’ Party to another four-year term. On Monday the world voted on Brazil’s choice, and this time the result was a resounding no confidence.

Brazil’s currency, the real, fell almost 2% and was trading at about 2.52 against the dollar at the end of Monday, close to its lowest point in a decade. Brazil’s main stock market index was down 2.8% to its lowest close in six months. Those markets had rallied some in the last few weeks as challenger Aécio Neves had come close to Ms. Rousseff in the polls. So the Monday selloff was a case of investors pricing in the discount of continuing bad economic policy. A Brazil credit downgrade to “junk” status is likely on present trend.

Brazil is proof that democracy is no guarantee of prosperity. A country rich in resources and people has managed to squander both with an overweening state that buys votes via income redistribution and price controls on gasoline that force losses on producers. Those are Third World policy blunders in a country that fancies itself a First World aspirant. This explains Brazil’s consistent economic underperformance (0.5% growth this year, following 2.5% in 2013) and 6.75% inflation rate.

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