Brazil’s Central bank: Risks, new and old

Brazil’s once-battered economy is finally showing strong signs of economic growth. The central bank and ministry of finance intend to keep it this way, by controlling inflation and reining in government spending. The Central Bank has pursued an aggressive policy of tight money, in order to prevent the rate of inflation from returning to the double digit levels it breached as recently as 2 years ago. If the central bank follows through on plans to raise interest rates, Brazil could witness the appreciation of its currency, as investors from other countries flock to Brazil in search of higher returns. Some analysts, however, are worried that the central bank may be acting too aggressively in its rate hikes. The Economist reports:

[The central bank's] friends worry not that it is misguided, but that it may now become over-zealous… [Some analysts believe] the central bank should accept a bit more inflation this year—say 5½-6%—rather than aiming to hit the target precisely.

Posted in forex brazil | Comments Off

Brazil’s Real Falls on Reverse Currency Swap Contracts Sale

According to Bloomberg markets, Brazil’s currency, the Real, is the best performer this year among 16 major currencies that Bloomberg tracks.  It should come as a wonder to no one, since the country boasts a surging economy and one of the developing world’s highest benchmark interest rates, at 12.5%.  Brazil’s case is further helped by an air of stability, a perception which has brought billions of dollars of foreign capital into Brazil and is contributing to the country’s $50 Billion-a-year trade surplus.  Last week, Brazil’s Central Bank, took its boldest step yet in stemming the rise of Real, by engaging in a large series of reverse currency swaps, in which the Bank essentially bought USD in the futures market.  Analysts interpreted the move as a sign that Brazil is about cut interest rates.  Bloomberg News reports:

“Now, if this is not a sign that they are holding the real and will have to cut 50 basis points at the next monetary policy meeting, I don’t know what is,” said one economist.

Posted in forex brazil | Comments Off

Brazil stocks, currency slip as Central Bank intervenes

Continuing our coverage of BRIC countries (see previous post), the Brazilian Real has climbed 20% in value this year alone, on top of gains recorded in previous years. Fearing that an expensive currency will adversely affect its economy, Brazil’s Central Bank announced its plans to intervene in forex markets on behalf of the Real. The Central Bank will buy Dollars at the spot rate, which should bring down the Real slightly. However, the Central Bank also intervened about two months ago, with limited effect on the Real.  And it doesn’t hold that this time around will be any different. Ultimately, there are economic forces beyond the control of the Central Bank which are propelling the Real upward. Reuters reports:

“But I don’t think the bank is going to be able to prevent the real from strengthening further,” said one analyst. “The dollar inflows into the country are too strong.”

Posted in forex brazil | Comments Off

Brazil to Pump $50 Billion in Forex Market to Shore Up Real

In a bold but perhaps necessary move, the Central Bank of Brazil recently announced an injection of $50 Billion into forex markets intended to stem the 30% fall in the value of the Brazilian Real that has taken place so far this year. Unfortunately for Brazil, the forces tugging on emerging market currencies far exceed the potential counter-efforts that such a country is capable of waging. Call it a lack of confidence, or a sudden aversion to risk. Either way, investors are fleeing regions that only months ago, they were still flocking to in droves. High interest rates, strong economic fundamentals, even capital injections and liquidity initiatives are no match for the financial tsunami. In addition, it’s not as if the Brazilian economy is necessarily in a good position to emerge from the crisis unscathed, as its neighbor Argentina could soon default on its debt…again. Bloomberg News reports:

The real has sunk 31 percent from a nine-year high of 1.5545 reached on Aug. 1 as the global crisis has driven down prices on the country’s commodity exports and eroded demand for higher- yielding, emerging-market assets. Only the South African rand, down 35 percent, has fallen more over that time.

Posted in forex brazil | Comments Off

Brazil to Alter Forex Trading Rules

In a thinly disguised effort to stem the appreciation of its currency, Brazil has announced sweeping changes to its rules governing forex.  Rather than revert to outright intervention in the forex markets, however, Brazil will permit businesses to hold more foreign currency as part of their reserves.  In this way, the Central Bank won’t have to purchase Dollar-denominated assets directly.  Instead, it is hoping that the natural attraction of US and other Western capital markets will be enough to drive private Brazilian companies to increase their holdings abroad.  It is intended that this will act against the upward pressure on the Real, which rose 20% against the Dollar in 2007, and 5% already in 2008, and now threatens to drag down the economy.  Dow Jones reports:

The strong real has made some Brazilian manufactured exports such as textiles and footwear less competitive. Meanwhile, it also has introduced a boom in imports resulting in a narrowing of the country’s trade surplus.

Posted in forex brazil | Comments Off

Brazil attempts to depreciate currency

Brazil’s currency, the Real, is currently hovering around a five-year high against the USD, after an historic run-up in value. In recent months, the Central Bank of Brazil has begun to grow nervous that a more expensive Real could stifle Brazil’s economy by crimping exports. Accordingly, the bank has purchased massive quantities of USD in a bid to hold down the value of the Real. While the Real has certainly stabilized, such intervention is misguided and probably doomed to fail in the long run. Other Latin American countries have followed suit, since western investors began pouring in investment money. Reuters reports:

Brazil’s central bank has been aggressively buying U.S. dollars on the spot foreign exchange market in recent months to build up reserves and, indirectly, prevent the country’s currency, the real, from strengthening too much.

Posted in forex brazil | No Comments »

©2004-2009 - Forex Trading in Brazil
debt consolidation. car loan