Category: Brazil

Brazil’s currency, the real, continued to fall from its four-and-a-half year high as the central bank sold more currency swap contracts yesterday, Monday, and announced it may intervene directly to buy dollars to build up its international reserves. The real fell 0.6% Monday to 2.266 against the US dollar following the central bank announcement. The central bank sold 7,600 currency swap contracts worth $365.3 million of dollar-linked debt.

Brazil’s central bank continued with its series of currency swap contract auctions to absorb excess dollars from the market. On Friday, in its eleventh auction since resuming the activity in November, the bank sold 8,600 currency swap contacts linked to short-term interest rates. The contracts cancel out around $411 million of debt instruments indexed to the dollar. The dollar-linked notes were originally sold to prevent the real from weakening.

Brazil’s inflation in November slowed to 0.55% compared with 0.75% in October. Annual inflation totalled 5.31% to November and is forecast to reach 5.67% by the end of the year. Analysts expect the central bank to make a half a percentage point interest rate cut on Wednesday from the current 18.5% to 18.0%.

Brazil’s currency the real has continued to slide from its four and a half year high after finally weakening following continuous intervention by the central bank to absorb excess dollars from the market. The real fell for two consecutive days, closing down 1.32% at 2.224 reais against the US dollar yesterday, Thursday. The central bank has been auctioning currency swap contracts since November in attempts to halt the rise of the real. The most recent auction was Thursday.

Brazil’s central bank has revised down its growth forecasts for this year from 3.4% to 3.0%. This follows the recent announcement of the economy’s slowest growth in two years – 1% y-o-y in the third quarter against 4% in the second quarter.

Latin American countries were the top issuers of local currency debt in the third quarter of 2005, thanks mainly to Brazil. The Bank for International Settlements (BIS), which publishes the figures of local currency issues in international markets, noted that Brazil’s real-denominated offering in September, worth $1.5 billion, accounted for most of the region’s total local-currency international issuance of $2 billion.

Brazil has carried out its seventh currency swap contracts auction since November in a continuing bid to get rid of excess dollars in the market. The central bank sold 11,300 currency swap contracts, worth $541.2 million, maturing between 2006 and January 2008. Brazil has sold just over $3 billion of currency swap contracts since 18 November when it resumed selling the instruments after an eight-month break. Despite the announcement of the sale yesterday, Monday, the real continued to strengthen against the US dollar, driven by increased investment and trade flows.

Brazil’s President Luiz Inácio Lula da Silva has tried to allay investors’ fears of a government spending spree ahead of next year’s elections by saying that the government will continue to follow current economic policies. Lula was upbeat about future economic growth despite a slightly gloomier picture seen recently. The government and the president’s popularity rating are at an all-time low following months of political scandal and investigations into bribes-for-votes allegations. Last week Lula lost one of his allies – Jose Dirceu, his former Cabinet chief – who was voted out of Congress despite any conclusive evidence of corruption links.

Brazil’s trade surplus was up $4.1 billion in November from $3.7 billion driven by an increase in exports of 9% and a slower import rise of 8%. This was the first increase in both exports and the trade surplus in three months.

Brazilian Safra Leasing, part of local Banco Safra, has completed the country’s largest single debenture offering to date, issuing 5 billion reais ($2.26 billion) of long-term unsecured non-convertible bonds. The bonds, which mature in July 2015, carry an annual interest rate linked to the local interbank rate. The issue was coordinated by Banco Safra de Investimentos SA.