November 12, 2014
Filipe Pacheco – Bloomberg, 11/10/2014
Brazil’s real rose for a second day on speculation President Dilma Rousseff will appoint an economic team that will revive growth and on wagers the U.S. Federal Reserve will avoid an early increase in interest rates.
The currency gained 0.3 percent to 2.5522 per dollar at the close of trade in Sao Paulo after dropping 3.2 percent last week. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, fell 0.04 percentage point to 12.61 percent on the contract maturing in January 2017. The real advanced amid optimism that the next finance minister will move away from policies that helped lead Brazil into a recession in the first half of the year. Today’s increase was the biggest among 16 major currencies tracked by Bloomberg after the South Korean won.
“There has been a lot of expectation that a new economic team will be able to restore growth,” Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo, said in a telephone interview.
November 12, 2014
Joe Leahy – Financial Times, 11/12/2014
At the height of Brazil’s bitterly fought election campaign in October, President Dilma Rousseff seemed to eschew any regard for market economics. To satisfy militant leftist supporters of her Workers’ Party, she painted members of the opposition PSDB party, known as tucanos, and its pro-business presidential candidate, Aécio Neves, as blood-sucking bankers.
“Those tucanos … implant inflation so they can collect interest,” she told an audience in Recife in Brazil’s poor northeast, the region whose support ensured her narrow 3 percentage point win in the election on October 26. “Today, Brazil has the lowest interest rates in its history,” she said during another encounter.
Three days after her victory in the election, however, the central bank did exactly what Mr Neves had been advocating – it increased interest rates to their highest level in three years to control inflation that is above the official target range ceiling of 6.5 per cent. Indeed, since the election, Ms Rousseff has quietly begun implementing several elements of Mr Neves’ platform to try to rebalance Brazil’s stagnant economy. Her stance has prompted jokes on Facebook that Mr Neves in fact won the election. The only difference is that Ms Rousseff’s version of his policies lacks her rival’s reformist zeal.
November 4, 2014
Paula Sambo – Bloomberg Businessweek, 11/04/2014
Brazil’s real led emerging-market declines as an unexpected drop in industrial production in September added to concern that President Dilma Rousseff will struggle to revive Latin America’s largest economy.
The currency weakened 0.9 percent to 2.5189 per dollar at 2:02 p.m. in Sao Paulo in the biggest drop among 24 developing nations. Swap rates, a gauge of expectations for changes in borrowing costs, increased 10 basis points, or 0.10 percentage point, to 12.49 percent on the contract due in January 2017.
The real also fell on wagers that Rousseff will appoint a finance minister who will maintain policies that helped lead to Brazil’s first recession since 2009. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the highest among 16 major currencies.
October 16, 2014
Alonso Soto and Jefferson Ribeiro – Reuters, 10/15/2014
Aecio Neves would scrap a “failed” economic model and restore the pillars of Brazil’s economy to overcome slow growth and high inflation if he wins the presidency this month, the candidate’s pick for finance minister told Reuters on Wednesday.
Neves, a centrist who has promised to rescue Brazil from recession, is running neck-and-neck with leftist President Dilma Rousseff ahead of the Oct. 26 run-off vote in the tightest race in two decades.
Sluggish growth and high inflation have been the focus of a combative campaign that pits two candidates with opposing views on how to fix the ills of the world’s seventh largest economy. Arminio Fraga, a former central bank chief, said the senator would restore the so-called “tripod” of economic policies based on fiscal austerity, inflation targeting and a free floating exchange rate that gave Brazil stability two decades ago.
September 30, 2014
Paulo Trevisani – The Wall Street Journal, 09/30/2014
Brazilians face many options in the Oct. 5 vote, but for economists and investors the options are clear: It is reform or die.
Latin America’s largest economy has weakened in the past four years and now growth is near zero, inflation is high and business confidence is depressed. Central-bank interventions keep the currency from a free fall.
But with unemployment low and many voters satisfied with greatly expanded welfare programs, incumbent President Dilma Rousseff may well end up getting a second term.
September 30, 2014
Matthew Malinowski and Mario Sergio Lima – Bloomberg, 09/29/2014
Brazil’s central bank cut its 2014 inflation forecast, saying the world’s second-biggest emerging market will grow at a “disinflationary” pace over the next quarters.
Consumer prices will rise 6.3 percent this year if policy makers keep the benchmark Selic (BZSTSETA) at 11 percent, according to the reference outlook in the quarterly inflation report published today. The inflation forecast compares with a 6.4 percent estimate for 2014 in the June report. Consumer prices will rise 5.8 percent in 2015, compared with a 5.7 percent forecast in June. Policy makers also said the economy will expand 0.7 percent this year, down from the previous estimate of 1.6 percent.
“Taking into account the growth outlook for the next quarters, the committee assesses that the output gap over the next quarters will remain in disinflationary territory,” policy makers said. They reiterated inflation will converge toward its 4.5 percent target in 2016.
September 4, 2014
Briefing based on IRIBA working paper 7, “Institutions for macro stability: Inflation targets and fiscal responsibility,” by José Afonso and Eliane de Araújo – International Research Initiative on Brazil and Africa, 08/2014
In the 1960s, military governments promoted far reaching structural economic reforms, creating innovative and stable institutions based on standard international theories and best practice at the time.
In this context, the 1960s saw the launch of the Government Economic Action Plan (PAEG), which was intended to promote stabilisation and a return to growth. The fight against inflation took priority because it was impossible for the country to progress while suffering from hyperinflation.
With an initial focus on monetary institutions, financial reform was focused on creating long-term financing mechanisms, avoiding inflationary public sector financing, and re-attracting private sector investment to industry, in order to drive growth.