Research Dept. News
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Monthly Report, num 355 - March 2012
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International review - Brazil
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Brazil: déjà vu?
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Brazilian inflation continues to moderate.
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Brazilian inflation rose again in January compared with the previous month, with the upswing in transportation and housing costs offsetting lower food prices, but it fell to 6.2% in year-on-year terms. This monthly upswing is deemed to be temporary and we expect the rate if inflation to continue to moderate throughout 2012, although the expansionary shift given to economic policies in the last part of 2011 will keep it above the main figure of the target range (4.5%). This forecast assumes a scenario in which Brazil's economic growth in 2012, which we estimate at around 3.0%, will be less than in 2011 due fundamentally to the global slowdown.
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The real, however, is reviving the threat of a currency war.
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The external influence is not only making its mark on growth but also on the exchange rate. As happened in the first half of 2011, the abundant liquidity resulting from the quantitative expansion of advanced economies, combined with lower risk aversion, has led to a notable increase in flows of capital towards Brazil and, consequently, to the real appreciating significantly. After depreciating by 13% between September and December 2011, the real rose by 5% in January and, discounting any dramatic scenario in the euro area, we expect upward pressures to continue.
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Given this situation, the Brazilian Finance Minister, Guido Mantega, has already announced that the threat of a currency war has reappeared and that the Brazilian economic authorities are willing and able to defend any undesired appreciation in their currency. The first sign of this has been Brazil's central bank intervening again via an auction to purchase dollars on the spot market, in order to stop its currency from breaking through the barrier of 1.70 reals per dollar.
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