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The
favourable inflationary trend has allowed the Central Bank to maintain its
current interest rate policy.
In its October meeting, the Central Bank Monetary Policy Committee
(COPOM, Comité de Política Monetaria) left the benchmark overnight rate
(SELIC) unchanged for the third consecutive month at 16.5% in August.
Economic
recovery drives import growth. In October, the trade
balance registered its second consecutive monthly deficit. The
accumulated surplus for this year reached US$ 191 million, down from US$
714 million in September and US$ 1.0 billion just two months ago.
The surprisingly healthy pace of economic recovery has generated higher
domestic demand for imports, which when combined with the rise in the
value of oil imports, has generated strong import growth and a
corresponding deterioration in the trade balance. In October,
imports were up 18.1% over the same month last year, compared to a 21.7%
increase in exports.
Currency
weakening on Argentina concerns. The uncertainty
surrounding the economic fortune of neighbouring Argentina and an investor
flight to quality attributable to high oil prices and volatility in US
stock markets prompted investors to shy away from most of the region’s
economies in the past month. From the end of September through 10
November, the spread on Brazil sovereign C Bond lost 108 basis points,
while the BOVESPA was down 10.0%. As a result, the Real has
depreciated by 6.3% since the end of September and international reserves
dropped by some US$ 800 million to US$ 30.4 billion on 10 November.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Brazil. For more details please click here.
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