The currency vs. inflation conundrum in Brazil

By
A A A

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.

Image courtesy Artyom Sharbatyan: http://commons.wikimedia.org/wiki/File:Christ_on_Corcovado_mountain.JPG All of this is leaving investors with a little Brazil whiplash, as this market remains the biggest disappointment in emerging market equity land after two years of underperformance.

Today's local newspapers are saying the 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 for consumption and investments.

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

For now Rousseff looks to keep spending to stimulate, and there is political motivation to do so. Brazil's consumers will keep spending but be wary -- there may be slower consumption ahead. The consumer space has been the only safe place to invest in Brazil for two years, and 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.



This article appears in: Investing , International , Stocks

Referenced Stocks:

Emerging Money

Emerging Money

More from Emerging Money:

Related Videos

Stocks

Referenced

Most Active by Volume

100,376,898
  • $17.62 ▲ 0.51%
83,231,837
  • $25.62 ▲ 1.91%
75,739,329
  • $111.78 ▼ 0.77%
65,297,937
  • $36.37 ▼ 1.76%
59,053,093
  • $47.66 ▲ 0.29%
53,482,350
  • $2.59 ▼ 0.38%
51,504,284
  • $7.34 ▲ 2.37%
51,434,656
  • $8.14 ▲ 6.96%
As of 12/19/2014, 04:15 PM


Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com