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Exchange rate stabilizing
as confidence over stability of external accounts rises
The Real experienced its strongest
appreciation this year in November with the currency gaining 7.1% in
nominal terms to the US$ to 2.52 Real to the US$. The November
strengthening reversed the trend of strong monthly depreciations initiated
in July. In early December, the Real continued to strengthen. It
appreciated by an additional 5.3% and closed at 2.39 Real to the US$ on 7
December. The current strengthening reflects increased market confidence
that external balances will remain stable. Participants have revised
their year-end exchange rate forecasts again this month. Forecasts
for next year have also received an upward adjustment.
Currency weakening passes through to domestic prices and undermines
Central Bank target
The mid-November consumer price index (IBGE-IPCA
15), which covers monthly price increases up to the 15th of every month,
increased 0.99% over October, which was up strongly from the 0.37%
increase registered in October and represented the second highest monthly
increase this year. The mid-November figure raised the annual inflation
rate from 6.5% in October to 7.6% in November. Primarily rising food
costs drove the price increase. This month’s Consensus Forecast indicates
that prices rose 0.49% for all of November, which would bring the annual
inflation rate to 7.4%. The current level remains well in excess of the
Central Bank’s inflation target of 6% for this year. Panellists
expect inflation to exceed the Central Bank’s optimistic target of 3.5%
for 2002 as a result of heightened economic activity.
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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