In addition to its comfortable reserves levels, Brazil has a favourable balance of payments, in which the capital account fully finances a modest current-account deficit (1.3% of GDP in July). ![]() This level of reserves provides 15-20 months of import cover and is double the amount of the country's short-term external debt. The country's international reserves exceed US$380bn (20% of GDP), which is more than enough to protect it from a balance-of-payments crisis. On the contrary, Brazil is more than capable of withstanding an external shock. The recent depreciation of the Real is not a reflection of a vulnerable external position. However, the Real's recent performance appears to be the product of a combination of idiosyncratic trends, rather than a significant deterioration of domestic economic and political conditions.ĭomestic and regional events drag down the Real During this period, the MSCI Emerging Market Currency Index, which tracks the performance of 25 emerging-market currencies relative to the US dollar, depreciated by only 4%. The Real lost 10% in value between mid-July and early September, before recovering some ground in recent days as the US administration dialled down its China trade war rhetoric. Nevertheless, The Economist Intelligence Unit believes that this trend will be transitory we expect the approval of pension and other reforms to support capital inflows and bolster the Real. However, the Brazilian Real has stood out as one of the worst-performing, sparking central bank intervention in the spot market for the first time in a decade-despite the country's solid external position and promising reform agenda. ![]() International risk appetite has soured and the US dollar has appreciated, weakening emerging-market currencies across the board. ![]() Print Share Foreign-exchange policy in Brazil: a shift in strategy? September 16th 2019 | Brazil | Financial markets and instrumentsĪlthough there has been some respite in recent days, trade tensions between the US and China have flared since mid-July, heightening fears of a slowdown in major economies.
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