Brazil hopes to sign a bilateral accord with China to promote trade in their national currencies at next week’s BRICS summit of the world’s five emerging powers, Trade and Industry Minister Fernando Pimentel said.
The initiative was tentatively agreed last June with the signing of a memorandum of understanding after a meeting of Brazilian President Dilma Rousseff and then Chinese prime minister Wen Jiabao during the UN summit on sustainable development in Rio.
Pimentel said that at the BRICS summit in Durban, South Africa on Monday and Tuesday “we plan to turn this memorandum into a final agreement which is being finalized by central banks of the two countries.”
Brazil’s real rallied the most among emerging-market currencies as the central bank said high inflation requires attention, spurring speculation that policy makers will let the currency strengthen to contain prices.
Swap rates climbed after the government reported that consumer prices increased in January at the fastest pace in almost eight years, adding to bets on a boost in borrowing costs. The exchange rate and tax cuts will help slow inflation, a central bank board member said in a phone interview, asking not to be identified because of internal policy.
“Higher inflation shoots the real up,” Joao Paulo de Gracia Correa, currency manager at Correparti Corretora, said in a phone interview from Curitiba, Brazil.
Mirror, mirror on the wall, who’s the biggest quantitative easer of all? Brazil has long accused governments in the developed world of using loose monetary policy to pump up their economies and get a competitive edge. But it may be time for Brazil to reflect on its own actions over the past five years.
During that time, Brazil has received huge capital inflows, pushing its foreign reserves from about $80bn at the end of 2006 to about $380bn today (see chart below). The central bank says it has “sterilised” those potentially expansionary and inflationary inflows by selling government bonds – standard practice at central banks around the world.
Guido Mantega, finance minister, told the Financial Times that Brazil was preparing new measures to prevent further appreciation of its currency, the real, and would raise the issue of exchange-rate manipulation at the World Trade Organisation and other global bodies. He said the US and China were among the worst offenders.
“This is a currency war that is turning into a trade war,” Mr Mantega said in his first exclusive interview since Dilma Rousseff, Brazil’s new president, took office on January 1. His comments follow interventions in currency markets by Brazil, Chile and Peru last week and recent sharp rises in the Australian dollar, the Swiss franc and other currencies amid an exodus of investment from the sluggish economies of the US and Europe.
John Lyons and Matthew Cowley – The Wall Street Journal, 01/04/2011
Brazil’s overvalued currency may be turning the South American giant into a U.S. ally on a key economic issue: Pressuring China to let its own currency strengthen to address global trade imbalances.
Brazil’s newly appointed Trade Minister Fernando Pimentel said Monday that President Dilma Rousseff, who took office Jan. 1, intends to put Chinese currency weakness on the agenda when Ms. Rousseff travels to Beijing in April. U.S. officials have long accused China of keeping its currency, the yuan, artificially weak to gain an unfair advantage in international commerce.
Brazil has criticized governments that it claims manipulate their currencies, including knocking China over its weak yuan. Recently, Brazilian officials have directed their harshest comments at the U.S., which is printing dollars to lower long-term interest rates, while sparing China, an increasingly important export market for commodity-rich Brazil. But that may be changing.