The big banks in Brazil are cutting their inflation forecasts for next year, which should give the government more ammunition to cut interest rates down the road.
Bradesco ( BBD , quote ) now thinks Brazilian inflation should slow to 5.5% in 2012, largely due to a slowdown in Europe and other developed markets for the country's natural resources.
China may or may not be part of the equation here.
If China actually curbs its appetite for everything from Brazilian paper -- made by Fibria ( FBR , quote ) -- to iron ore from Vale ( VALE , quote ), we could see not just a decline in global resource inflation but a deep dip in these companies' business.
But if China remains strong, Brazilian companies that cater to China will get stronger while those that primarily sell to U.S. or European customers will have a more difficult time.
The global recession scenario will make it extremely for Brazil to maintain its own economic growth, and that in turn could force central bankers to slash interest rates as a form of stimulus to evade the worst of the potential damage.
A strong China scenario may not require such aggressive rate stimulus depending on the government's political goals.
Either way, weaker interest rates should ultimately keep the Brazilian real on the defensive and depress the value of real-oriented funds like BZF ( quote ).
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