The “fragile five” – Brazil, India, Indonesia, Turkey and South Africa – have had a torrid time since Morgan Stanley identified them last year as countries particularly vulnerable to the “tapering” of US monetary stimulus because of their large and rising current account deficits.
But, over the last two months, the investor storm that drove currencies, bond prices and equities lower in these five countries has abated. The pariahs of only several weeks ago have become investor darlings.
The questions now are: how sustainable is this rally and to what extent does this investor rehabilitation result from the five countries’ hard work to repair economic frailties? As a guide, we present our own ranking – the beyondbrics “fragile five work/reward quotient” (see below). Continue reading »
Imagine you’re Brazil’s central bank president, Alexandre Tombini.
It’s an election year and your boss is Dilma Rousseff. Growth is slowing and high interest rates are boosting debt servicing costs for voters who are up to their eyeballs in debt. Continue reading »
The OECD has one key piece of advice for Brazil’s government when it comes to monetary policy: let the central bank do its job.
While praising Brazil for reducing poverty and inequality, the OECD said in its report on Tuesday that the country must build confidence in its macroeconomic policies by tightening monetary policy and improving the credibility of the central bank. Continue reading »
Second-guessing Brazil’s central bank has been a little tricky recently. Market volatility and behind-the-scenes political pressure have made interest rate decisions somewhat of a mystery. But economists and traders are relatively confident of a 50 basis point interest rate hike later on Wednesday, it seems. Continue reading »
Imagine being in the shoes of Brazil’s central bank president Alexandre Tombini (pictured) on Wednesday. Beyondbrics pictures the scenario as something like this:
Mr Tombini was sitting at his desk reading the newspapers this morning and thinking about tonight’s regular meeting of the monetary policy committee, known as Copom. “I think I will argue for a 50 basis point rise tonight. After all, inflation is hovering near the top of our admittedly already generous range of 4.5 per cent plus or minus 2 percentage points and it’s time to show that we mean business.” Continue reading »
By Tony Volpon of Nomura
Why has growth in Brazil been so disappointing these past two years, falling from 7.5 per cent in 2010 to below 1 per cent in 2012? There are two competing responses. The first, favored by the government, puts the blame mainly on external factors, such as the European crisis and the growth slowdown in China. The second emphasizes supply-side constraints, whether in poor infrastructure or tight labor markets.
Though these two explanations are not mutually exclusive, they are hard to fully square up with the data. Continue reading »
After a few weeks of mixed news on the economy, could it be that the government’s “salt bath” (or banho de sal grosso in Portuguese), which in Brazilian superstition is something one does to ward off bad luck, is yielding results? Continue reading »
For much of this year, the Brazilian real has been one of the world’s worst-performing currencies. That largely served Brasilia well: it wanted a weaker real to help boost the slowing Brazilian economy. Lately, though, the real has been clawing back lost ground; during the first half of August, it even outperformed its Latin American peers.
But this week the central bank decided it had had enough. After a lengthy market absence, it intervened on Tuesday to stop the currency from strengthening further. The magic number it seemed to be defending? About 2 reals to the dollar. Continue reading »
Banco Cruzeiro do Sul, literally Southern Cross Bank, is the kind of horror story every regulator should fear.
Though small and systematically irrelevant, the flagrant malpractice allegedly committed on its books is the kind of thing that can bring a whole system into disrepute.
To recap, the bank was taken over by the central bank and put under the administration of the FGC, the country’s deposit guarantee fund, after the discovery of “non-existent assets” on its books. This from Moody’s:
On August 15, 2012, the FGC published a Special Opening Balance Sheet as of June 4, 2012, which presents a negative equity position of R$2.237 billion after adjustments of R$3.11 billion largely related to non-existent assets, insufficient provisions for loan losses and contingencies, and the reversal of profits on repurchased loans.
Continue reading »
Brazil and Argentina must be green with envy. Economists are increasingly downbeat on Brazil’s growth, cutting their 2012 forecast again (to 1.75 per cent). Argentina’s latest official data, showing flat activity in June was only good because it was not as bad as expected. And then here comes Chile with expansion of 5.5 per cent in the second quarter and 5.4 per cent in the first half, better than market expectations, and the fourth straight quarter of growth. Continue reading »
We all know about the backlash against the corporate chief executives who try to award themselves extravagant pay raises even after delivering rubbish financial results.
But what about employees of central banks who want pay raises to compensate for inflation even though they are meant to be the very people responsible for curbing price hikes?
That may sound strange but that is what is happening in Brazil. Continue reading »
When a central bank has to release a press statement reminding everyone that it remains an autonomous institution and is not under political pressure from the government, you know something is up. Continue reading »
Two bits of data released by Brazil’s central bank on Monday make it even more likely the bank will cut its policy interest rate to within a whisker of its all-time low on Wednesday.
But even then, the rate will still be pretty high. And if market expectations are to be believed, it will get higher again before long. Continue reading »
Brazil’s central bank has cut its benchmark interest rate by 50 basis points to 10.5 per cent.
No surprises there, then.
Here’s the accompanying statement: Continue reading »
No wonder Brazil’s finance minister, Guido Mantega, got in such a huff about the strength of the real last year, inciting a global currency war wherever he went.
New data from the central bank on Wednesday shows that a whopping $65.28bn in dollar inflows poured into Brazil in 2011 — almost triple the previous year’s total of $24.35bn. Continue reading »