Brazil antitrust agency investigating banks for suspected rate manipulation

Jeffrey T. Lewis and Rogerio Jelmayer – The Wall Street Journal, 7/02/2015

Brazil’s antitrust agency is investigating banking giants Citigroup Inc., HSBC Holdings PLC, Deutsche Bank AG and a long list of their peers on suspicion of forming a cartel to manipulate the exchange rate of the Brazilian currency, the real.

There are “strong indications” of the use of anticompetitive practices in the foreign-exchange market by the three big banks and 12 other U.S. and overseas lenders, the agency, known as CADE, said Thursday. The agency also named 30 individuals in the investigation.

CADE said there was evidence the banks and the individuals worked together to fix the exchange rate, coordinate the buying and selling of currencies, manipulate the Brazilian central bank’s PTAX reference exchange rate and impede the operations of other banks operating in Brazil’s foreign-exchange market, among other things.

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Real drops amid signs Brazil faces worst recession in 25 years

Paula Sambo – Bloomberg, 6/19/2015

The real fell the most among major currencies as Brazil braced for its worst recession in 25 years after the central bank reported that the economy contracted more than forecast in April.
Efforts by President Dilma Rousseff’s administration to reassure investors by increasing taxes and reducing expenditures are expected to damp the nation’s gross domestic product in the second quarter. Moreover, Brazil is the only nation in the Group of 20 to raise interest rates this year as inflation stays above target, further hampering growth prospects.
“It’s not a good picture,” Joao Paulo De Gracia Correa, a foreign-exchange superintendent at SLW Corretora de Valores, said in a telephone interview from Sao Paulo. “The economy is coming in even weaker than anticipated.”

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Brazil Central Bank reduces rollover pace of currency swaps again

Stephen Eisenhammer – Reuters, 6/17/2015

Brazil’s central bank decided on Wednesday to reduce again the rollover pace of currency swaps that mature early next month, a move that is likely to weigh on the Brazilian real.

The bank said in a statement that it would auction on Thursday as many as 5,200 currency swaps to roll over similar contracts that mature on July 1.

Last week, the bank cut its offering to 6,300 from 7,000 contracts per day.

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Brazil’s real leads gains as Embraer wins $2.6 billion in orders

Paula Sambo – Bloomberg, 6/15/2015

Brazil’s real climbed the most among major currencies as Embraer SA won jet orders worth $2.6 billion, adding to speculation that the South American country’s inflows will increase.
Executives of the company announced Monday at the Paris Air Show deals with United Continental Holdings Inc. and other foreign buyers, cementing its standing as the biggest maker of regional jets. The planemaker reached an agreement with a Chinese airline and expects growing demand in the Asia-Pacific region over the next two decades.
“Big deal announcements mean long-term, stable capital inflows and positively impact the current account and the currency,” Ipek Ozkardeskaya, an analyst at London Capital Group, said by e-mail.

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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 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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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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