Real Surges Ahead as Central Bank Calls Inflation Rate High

Real, the major Brazilian currency became the best performing currency among all the emerging market currencies, thanks to the announcement made by the Central Bank on probable actions to be undertaken to deal with high inflation. The investors are already speculating that the policy makers of Brazil will let Real strengthen further so that it contains prices.

There was also a Government report released which stated that the consumer prices have increased in January, 2013 and the pace was the fastest in the last 8 years. This added to the bets on a boost in the borrowing costs. One member of the Central Bank’s board stated that the tax cuts and exchange rates will help the inflation to slow down. However, he asked not to be identified as this is an internal policy of the bank.

Currency Manager of Correparti Corretora, Joao Paulo de Gracia Correa rightfully stated that it is because of the high inflation that the Real has been able to get to a high level. On today, Real has increased by 1.1% against the USD and is at 1.9687 per Dollar now. This marks the strongest level of the currency against USD since last May, on closing basis. The swap rates which are due in January, 2015 increased by 9 basis points and are at 8.18% currently, marking its highest level since 3rd October, 2012. The IPCA consumer price index has increased by 0.86% in January from that of last December, marking the biggest surge in almost last 8 years. Incidentally, this is higher than the expected increase of 0.83% set by the analysts. The annual inflation of Brazil increased to 6.15%, faster than the target range’s midpoint set by the Central Bank for straight 29 months.

While releasing its minutes of meeting of the discussion held between 15th January and 16th January, the Central Bank stated that the country’s inflation is actually getting to a worse level in the short term. The Selic target lending rate of the bank has also been kept at a record low value of 7.25% for the 2nd time in a row. The economic expansion of Brazil, incidentally, has been the slowest in the last 2 years, if the figures of the last decade are considered. For controlling inflation, the Government may actually scrap the federal taxes on food staples.