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Non-Tech : The Brazil Board
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From: elmatador1/29/2013 12:30:59 PM
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Brazil: What’s Going On? Currency vs. Inflation

By Emerging Money, January 29, 2013, 09:30:24 AM EDT
Nobody knows what is going on with the currency in Brazil. After months of targeting a weaker Real, the Brazil Central Bank may be changing course and they may have to.

All of this is leaving investors with a little Brazil whiplash as this market remains the biggest disappointment in emerging market equity land after 2 years of underperformance.

Today's local newspapers are saying Brazil Central Bank (BCB) will use Real appreciation to tame inflation, yet if you listen to President Dilma Rousseff yesterday she said "...we have macro conditions to still reducing interest rates".

Well, what is it, are you lowering rates and putting more downward pressure on the currency or are you letting the currency appreciate in order to stem inflationary pressures that are building?

Maybe its politics but the government keeps endorsing incentives to consumption and investments.

Meanwhile reducing SELIC (Special Clearance and Escrow System) rate runs in the opposite direction of BCB's interest in using the currency to fight inflation.

For now, Dilma looks to keep spending to stimulate and there is political motivation to do so. Brazil's consumer will keep spending but be wary; there may be slower consumption ahead. Consumer space has been the only safe place to invest in Brazil for 2 years...this may be changing.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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