By Márcio G. P. Garcia, Lucas Maynard and Rafael Fonseca
The deterioration of the Brazilian economic situation in the last few months is quite impressive. Looking through a few of the recent economic indicators, the only ones that are pointing up are the ones that you would like to see going down: inflation, unemployment, delinquency rates, interest rate and public debt.
Despite an economic policy U-turn in the second Dilma Roussef´s government, represented by the substitution of the heterodox Finance Minister Guido Mantega by the University of Chicago-trained Joaquim Levy and by the Brazilian Central Bank’s much tougher monetary policy stance, the government has not been able to contain a deterioration in the expectations. The confidence indicators are at their lowest level in history, indicating that not only is the situation dire, but also there is no likelihood of it getting any better in the short term. Read more
There are plenty of misconceptions about Brazil. Many Brazilians have no interest in football, can’t stand samba and would rather spend the weekend in a shopping centre than on the beach. They certainly don’t speak Spanish. When it comes to the economy, though, perhaps one of the biggest myths about the country is that Brazil has an inflation target of 4.5 per cent.
Officially, the Brazilian central bank’s annual inflation target has been 4.5 per cent ever since 2005. However, in reality, inflation data show Brazil has actually been working with a target closer to 6 per cent for the past few years. Read more
Two central banks surprised the world last week with unexpected hikes in interest rates in the face of panicky financial markets. Raising rates a startling 150 basis points, the Central Bank of Russia was reacting sharply to yet another week of runs on the rouble. (It fell further this week nonetheless.)
The other, the Central Bank of Brazil, increased the cost of borrowing by a more modest 25 basis points. It seemed to be attempting to re-establish its independence credentials after the previous weekend’s presidential elections and subsequent worries that economic policy would tend towards the populist and the inflationary.
Yet just as with the advanced economies’ central banks – the Bank of Japan ramping up quantitative easing just as the Fed withdraws – monetary policy has diverged rather than unified in the big emerging economies. Read more
Will the consensus on Brazil’s economy never bottom out? For the third week in a row, market economists have cut their outlook for GDP growth this year, to 1.24 per cent, according to a central bank survey. That’s down from 1.44 per cent last week and 1.62 per cent four weeks ago.
The consensus for next year is down, too, to 1.73 per cent, from 1.8 per cent last week and 2 per cent four weeks ago. Read more
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. Read more
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. Read more
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. Read more
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. Read more
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.” Read more
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. Read more
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? Read more
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. Read more
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.
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. Read more
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. Read more
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. Read more
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. Read more
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: Read more
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. Read more
What better way to start the new year than by holding a bond sale and showing everyone who is boss.
Brazil once again flaunted its enviable position in global debt markets on Tuesday by selling $750m of its 2021 dollar-denominated bonds at a yield of 3.449 per cent (150 basis points above comparable US Treasury bonds). Read more