Thursday, April 7, 2011

Brazil's Real

This morning the Brazilian Real dipped under 1.60 to the US dollar for the first time since the 08 crisis (right now 1.595) and looks like making all-time highs against the greenback in short order. It also cocked a snook at Brazil's FinMin Guido Mantega, who just yesterday rolled out the latest set of controls on foreign capitals flowing in to Brazil that was supposed to stem the tide. Here's Merco Press News with a straightforward and decent report on the whole issue and here's an excerpt of the top paragraphs designed to get you to click through and read more:

Underscoring the urgency in senior levels in the Brazilian government to tackle the rising Real, during a prime time televised news conference Mr. Mantega announced the new measure: an extension of a 6% tax on short term foreign-currency loans to longer dated paper, from 360 to 720 days.

It was at least the fourth capital control introduced by Mantega since October.


These days,  Brazil's currency muscle is measured not only in dollar terms down this way. You only need to look at the number of deals Brazilian companies are looking to make in other LatAm countries (and really, there are too many to note here but all sectors, from minerals to manufacturing, are seeing companies in Spanish speaking South America snapped up by Brazilian companies) to get a better feel. Another way is to visit Brazil's metropoles, such as Rio or SP, and note the cost of living is on a par with any "first world" country for foreign visitors.

UPDATE: Reader, site friend, Brazil expert and all-round good egg Drunkeynsian leaves this in the comments section and fwiw it sounds spot on to me:

Brazilian government doesn't want to mess with the level of the currency. Since Central Bank decided not to raise rates aggressively to contain inflation, any help from import prices is welcome. Exporters complain and get some fireworks, but it seems clear to me Brazil is choosing a quite radical Ricardian approach to its future: sell commodities, forget about the rest, and pray for a very long cycle. The other side of that is a net foreign liability of US$ 700 billion, but nobody seems to care about it now.