Is Brazil giving up on growth?

Kenneth Rapoza – Forbes, 04/25/2016

Inflation is down nearly 100 basis points from a few months ago, but the Central Bank of Brazil has no intention of lowering interest rates. Investors should take this coming Wednesday’s meeting as a cue whether or not there is a growth strategy anywhere in Brasilia.

Nomura Securities said that they are forecasting the Bank to keep rates at 14.25% even though inflation is coming down. Brazil’s rolling 12-month inflation was as high as 10.7% in January. It’s currently 9.4%. Nomura has close ties to Brazil’s central bank and is good gauge of which way the wind is blowing on the monetary policy committee.

Brazil’s economy, expected to contract by around 3.5% again this year, is facing a massive political crisis. It would be good if the central bank could be more independent and cut rates to boost growth. On the other hand, sentiment among Brazil’s business class is so burned out with the twin crises of politics and economics that it is going to take more than a rate hike to improve things.

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How the shutdown and possible default affect Latin America: trade and growth in the region would take major hit

Patricia Rey Mallén – International Business Times, 10/14/2013

As the United States holds its breath waiting for the resolution on the shutdown, so does Latin America. The fiscal crisis that began two weeks ago with the closing of the U.S. government and could culminate in a U.S. debt default in a few days could have disastrous consequences for the United States’ southern neighbors, hurting the currency exchange rates and weakening the region’s growth.

The U.S., still Latin America’s largest trade partner and investor, must decide whether it will raise the debt ceiling, currently at $16.7 trillion, or suspend payments to bondholders. If that were to happen, possibly as soon as October 17, the world economy would suffer another blow, starting in Latin America and the Caribbean.

“The region is in a very complex situation due to the fiscal crisis and the shutdown,” Colombian financial analyst Juan Alberto Pineda told financial newspaper El Economista América. “The signals that are coming out [of Washington] do not look positive for Latin American exports, or an exchange rate that allows the region to compete in global trade.”

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Brazil Real closes stronger

Jeff Fick – The Wall Street Journal, 02/27/2013

Brazil’s real closed stronger against the U.S. dollar Wednesday as concerns about local inflation and Italy’s political uncertainties faded.

The real exited active trading Friday at BRL1.9722 to the U.S. dollar, stronger than Tuesday’s closing price fixed at BRL1.9829, according to Tullett Prebon via FactSet.

Brazil’s currency tracked gains by the euro, seen as a key barometer for the real, as global markets rebounded from this week’s selloff on inconclusive results from the Italian elections. Investor appetite for riskier assets such as emerging-market currencies recovered after Italy successfully sold about $8.5 billion of bonds, although at the highest yields since October 2012.

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Quantitative easing, Brazilian style

Jonathan Wheatley – Financial Times, 09/10/2012

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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.

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Brazil’s mysteriously timed interest rate cut

Alexander Ragir and Matthew Bristow – Bloomberg Businessweek, 09/09/2011

Rousseff (right) and Finance Minister Mantega Ed Ferreira/Agencia Estado/AP Photo

Investors suspect the central bank of caving in to political demands

Who sets interest rates in Brazil: Is it Central Bank President Alexandre Tombini or the country’s President, Dilma Rousseff? That question hung over financial markets after the Central Bank of Brazil cut the benchmark Selic interest rate by half a point, to 12 percent, on Aug. 31. The move was unexpected: The bank’s rate-setting committee had ratcheted up the Selic at its five previous meetings to combat inflation and had not signaled a change in its stance. Yet Rousseff in an Aug. 30 radio broadcast had said rates should begin to fall as the government curbs spending.

The abruptness of the shift in monetary policy left money managers such as Guilherme Figueiredo, director of M. Safra, a São Paulo investment firm, with the impression that Tombini had caved in to political pressure. “This is the worst possible decision our central bank could have made at such a moment,” Figueiredo says. “The loss of credibility is going to be large.” Rousseff’s press office declined to comment when asked about the rate decision.

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Brazil throws dollar yet another life raft

Kenneth Rapoza – Forbes, 07/27/2011

The Brazilian government, in its frustrated attempt to save the dollar and keep its currency from overvaluation, has come up with a new set of macroeconomic measures for the currency markets. On Wednesday morning, two new rulings were handed to dollar traders. It was a surprise move, with many people expecting the dollar to weaken to BRL1.50 before any new measures were announced.

The dollar was trading at BRL1.54 this week, its lowest level against the Brazilian real in 12 years. Finance Minister Guido Mantega warned more measures were likely. Two days later, currency traders woke up to yet another round of rules and tax implications.

First, the government amended a 1980 law that grants authority to the Monetary Council (CMN) to impose and control financial transaction taxes, or IOF taxes, on dollar derivatives contracts – dollar forwards and futures contracts. The dollar futures market is the biggest futures market in Brazil. Under the new rule, CMN can charge as much as 25% in the IOF tax — the limit specified under existing national laws.

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The easy credit that fueled Brazil’s boom now imperils it

Paulo Prada – WSJ, 06/13/2011

Brazilian policy-makers have fueled their country’s economic boom through a state-owned bank that keeps business flush with credit.

Now the engine that has helped the nation become a global player in beef, oil and mining is colliding with another policy imperative: battling inflation.

The Brazilian National Development Bank, in its latest spur to the economy, last week announced it would lend $1.6 billion at below-market interest rates to help a large company to build a pulp and paper mill.

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Emerging Markets Week: ‘fasten your seatbelts’ Brazil investors

Chris Marshall – Moneywire News, 06/10/2011

A whole industry has developed to pontificate on the next moves of the world’s economic decision-makers. But more important than a PhD in economics and an overweight in brain matter is an ability to spot nuance and identify the subtleties of central bank semantics.

This is the challenge facing investors in one of the world’s most important growth economies, Brazil.

Of all the emerging markets tackling rising inflation – and that’s most of them – Brazil’s battle is one of the toughest. It’s also among the most important for foreign investors depending on the BRICs for their retirement funds.

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