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

March 6, 2015

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

March 6, 2015

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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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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