Some Analysts Expect Reversal in Brazil

The President of the Central Bank of Brazil, Alexandro Tombini, is committed to fight against inflation and the same is increasing prospects that Real will soon be rebounding from a 4-month low figure, as far as the trade patterns are concerned. On last week, Real weakened by 0.7% against USD and thereby it has got outside of the so called trading envelope for the first time since March. Such an occurrence indicates that the decline will be difficult to sustain. Just after Turkish Lira and Singapore Dollar, Real is the 3rd currency that is deviating the most from the typical Bollinger band.

On 16th May, Tombini told the reporters that he will do whatever is required for lowering down the inflation. The inflation breached the 6.5% ceiling which was the target range of policy makers in March. The currency is trading 1% weaker currently than the rate which triggered the last intervention that the Central Bank made, on 27th March.

According to the Strategist of Societe Generale SA, Eamon Aghdasi, Brazil is a unique case if one sees in terms of the fact that this Latin American country has a more alarming inflation situation if compared to any of the emerging market countries. Aghdasi added that the Brazilian policy makers are pretty concerned about the inflation, yet they don’t want a sharp decline in the same. When asked, an official of the Brazilian Central Bank declined to make any comment on the possibility of a currency intervention.

On today, Real has surged ahead by 0.2% and it is currently at 2.0310 per USD. The currency, on 17th May, declined by 0.4% to 2.0352 per USD, marking its weakest close since 23rd January. Last week was the 3rd straight week when the currency dropped as there were concerns that the Federal Reserve will be scaling back the stimulus measurements taken, thereby reducing the investment in Brazil, the largest developing country, right after China.

As far as a recently released data from the Central Bank of Brazil is concerned, the foreign currency inflows of Brazil from trade and investment have accounted to $2.3 billion in 2013 till 10th May. In the first 5 months of 2012, the same was at $22.6 billion. Around $995 million in currency swaps were sold by the Central Bank, the process being equivalent to selling USDs in the futures market.

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