Brazil’s Real Climbs as Higher Rates Seen Attracting Investors

Filipe Pacheco and Paula Sambo – Bloomberg Business, 4/27/2015

Brazil’s real rose for a fifth straight day amid speculation the central bank will raise borrowing costs by another half-percentage point this week, making local assets more attractive to international investors.

The real gained 1.2 percent to 2.9170 per dollar at the end of trade in Sao Paulo, an eight-week high. The rally that began April 20 is the longest since June 2014.

Buying the real with borrowed dollars has returned 11 percent this month, the most among the 31 major currencies tracked by Bloomberg after the ruble. The real climbed Monday as analysts forecast that Brazil will lift the target lending rate on April 29 by 50 basis points for a fourth straight meeting to curb above-target inflation. The Federal Reserve, meanwhile, is expected to hold borrowing costs steady that day as U.S. economic growth shows signs of slowing.

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Brazil’s Real Climbs as Higher Rates Seen Attracting Investors

Brazil’s Annual Inflation Hits Highest Level In Nearly 10 Years

Rogerio Jelmayer – The Wall Street Journal, 5/6/2015

Consumer prices in Brazil rose more than expected in February, putting the 12-month rate at the highest level in nearly 10 years and underlining one of the main challenges facing Latin America’s largest economy in the year ahead.

Brazil’s consumer-price index, the IPCA, was up 1.22%, compared with a rise of 1.24% in January, the Brazilian Institute of Geography and Statistics, or IBGE, said Friday.

The rolling 12-month IPCA increased 7.70% through February, up from 7.14% in January, remaining well above the 6.5% ceiling of the central bank’s target range. The 12-month figure marked the highest level since May 2005, when it reached 8.05%.

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Brazil’s Annual Inflation Hits Highest Level In Nearly 10 Years

Getting Real In Brazil

Michael Lingenheld – Forbes, 3/5/2015

Whenever there’s a sell-off after bullish news, it’s typically a sign of more pain to come. Brazil’s central bank raised benchmark interest rates to 12.75% on Wednesday in order to quell inflation, but the Real (BRL) dropped even further. The Real has now declined more than 11% YTD relative to US dollars – the worst performing currency in the world outside of Ukraine. Inflation in Brazil was running above 2,000% Y/Y as recently as the early 1990s, so it’s rationale for the central bank to make taming prices their priority #1, but the rapidly slowing economy is desperate for a boost.

Inflation above 7% Y/Y has eroded purchasing power in a country that relies on private consumption for 50% of GDP. Economists are currently projecting a 0.5% contraction in GDP this year followed by 1.5% growth in 2016 – hardly the stuff of a burgeoning superpower. Global investors have taken notice, pulling $1.3 billion from Brazilian bond and stock funds since the start of this year. The stagflationary environment could get worse before it gets better.

Despite lackluster growth, local prices keep rising for two reasons beyond the weak Real and rising taxes. First, the minimum wage in Brazil is adjusted annually depending on economic conditions. At this point the minimum wage is really just a political tool used to buy votes since it has outpaced inflation dramatically over the past decade. President Dilma Rouseff increased the minimum wage 8.83% for 2015 last June; conveniently the announcement was made three months before her re-election.

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Getting Real In Brazil

Brazil’s real drops sharply on Levy comments

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 sharply on Levy comments

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

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

Brazilian Real Declines to Nine-Year Low Amid Economic Weakness

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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Brazilian Real Declines to Nine-Year Low Amid Economic Weakness

Brazil, Uruguay move away from US dollar in trade

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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Brazil, Uruguay move away from US dollar in trade