Brazil’s real: how low can it go?

Joe Leahy, John Paul Rathbone – Financial Times, 02/08/2016

When Dilma Rousseff attended the 2016 opening session of Brazil’s congress this week, she appealed to lawmakers to approve tax increases to tackle a widening gap in the country’s public finances.

Most critically, the president called for the reintroduction of a tax on financial transactions, known as the CPMF, that was abandoned in 2007 after objections from business. Opposition congressmen booed her.

But with Brazil reporting a budget deficit last year that was the biggest among emerging economies except for Saudi Arabia at over 10 per cent, unpopular measures are needed to save the country from a deepening fiscal hole, analysts say

UPDATE 1-Brazil 2015 budget gap hits record as austerity fails

Alonso Soto – Reuters, 01/29/2016

Jan 29 Brazil’s overall budget deficit soared to a record 613 billion reais ($150.99 billion) in 2015, central bank data showed on Friday, nearly doubling from last year as efforts to rebalance fiscal accounts failed and interest rates shot up.

The budget deficit equaled 10.34 percent of the gross domestic product, nearly five times its shortfall in the 12 months to mid-2011. The deficit mushroomed under President Dilma Rousseff, who took office at the start of 2011.

In comparison, at the height of its debt crisis in 2009 Greece had a deficit of 15.2 percent of GDP.

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Brazilian real drops as recession deepens and China trade slumps

Filipe Pacheco – Bloomberg Business, 11/9/2015

The Brazilian real slumped as economists in a central bank survey said the recession is worsening, while a disappointing trade report out of China shows it’s unlikely the Asian nation can help fuel a rebound anytime soon.

The real dropped 0.7 percent to 3.7937 per dollar as of 10:44 a.m. in Sao Paulo. The currency is down 30 percent this year, making it the worst performer among 31 major counterparts to the dollar tracked by Bloomberg.

Economists now forecast Brazil’s economy will shrink 3.1 percent this year and 1.9 percent next year, deeper than the 3.05 percent and 1.51 percent contractions they had estimated a week ago, according to the central bank survey published Monday. Adding to Brazil’s economic woes, Chinese overseas shipments declined 6.9 percent in October in dollar terms, the customs administration said, a bigger decline than estimated by all 31 economists in a Bloomberg survey. China is Brazil’s biggest trading partner.

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Can the Brazilian real sink to five?

Kenneth Rapoza – Forbes, 11/8/2015

Anything can happen in a free market. But what will become of the weakest currency in the big four emerging markets if the Fed hikes rates next month? Will it to go R$5.00 as some uber-bears are now forecasting?

Brazil’s benchmark consumer price index, the IPCA, rose to 9.9% from a year earlier in October, up from a steady 9.5% in August and September. This is happening in a recession and with interest rates unchanged at 14.25%. Moreover, the currency has actually strengthened by around half a percent over the last month. In monthly terms, Brazil’s inflation index rose a non-seasonally adjusted 0.82% in October, over 10% now in annualized terms, all because of higher domestic food prices and transportation costs. Pass-through of the weaker real was the key driver of inflation, raising the local price of fuel and food, an energy-intensive product. The real is down 26.7% against the dollar over the last six months and has only began to flex its muscles in the last few weeks.

The real’s stabilization since mid-September could help to cool inflation in 2016 if sustained, says Bill Adams, senior international economist with PNC Financial in Pittsburgh.

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Real takes a reality check as Brazil strains to support its currency

Katie Martin – Financial Times, 10/4/2015

Brazil’s currency, the real, is tormenting many fund managers.  Few thought it would see out the year unscathed. The country’s high interest rates were never likely to be enough entirely to shield the currency from trading weakness at a time when the economy was shrinking and the US is on the cusp of raising interest rates.

But the real has contrived to stand out particularly among a field of emerging markets currencies almost all of which have suffered bruising declines.

The pace and scale of the fall in the Brazilian currency, once a popular pick as one of emerging markets’ juiciest bets, have stumped even the most seasoned observer and left some investors peeking at their screens through their fingers. “Mayhem” is how Rabobank described it; the source of “one of the wildest days we’ve ever seen in Latin American markets”.

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Brazil’s Real strengthens against dollar

Jeffrey T. Lewis – The Wall Street Journal, 9/24/2015

The Brazilian real strengthened against the dollar on Thursday, the first time in six sessions, after the president of the central bank said he is willing to use the country’s foreign reserves to defend the currency.

The real ended active trading at 4.0438 to the dollar, according to Tullett Prebon via FactSet, after closing at 4.1325 on Wednesday. Trading was volatile during the day, with the real hitting 4.2447 to the dollar in the morning, its weakest level since it was launched in 1994.

The real has been dropping against the dollar in recent days, pulled down by political turmoil and the country’s economic troubles.

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