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 Brazil's currency may not strengthen to previous levels because of ongoing global market turmoil and the government may use international reserves to increase liquidity, the Brazilian Finance minister said on Friday, October 3.
"My impression is that the currency will not return to the levels of the (recent) past, it will keep at a more realistic level," Guido Mantega said in a speech in Sao Paulo.
The currency had been trading at its strongest level since 1999 before the recent plunge, causing some exporters to demand protection from the government.
Since early August, the Real has dropped more than 20% as uncertainty over the fate of the US economy pushed investors out of riskier emerging market currencies into the US dollar.
When President Lula da Silva took office in 2002 the US dollar was trading at 4 Brazilian reais but it has since eroded (and the Brazilian currency soared) to 1.50 reais.
Mantega said the government is preparing new measures to help boost credit to exporters after trade finance tightened because of the global liquidity crunch.
Brazil also could tap its more than 200 billion US dollars of international reserves, Mantega said.
The central bank has offered dollar repurchase agreements to help ease a liquidity crunch in the foreign exchange market. It uses dollars from the reserves for these operations but they are returned in 30 days, Mantega said.
Mercopress
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But Joao disagreed !
And when I have telling here the Brl is going to come down, as usual I was the idiot !
Hmmmm !!!!!
On the other hand a somewhat lower Brl is not negative ! As long as you control the inflation rate !
But looking at the other emerging nations, many already used part of their foreign currencies reserves, to support their currency
and provide more liquidity to their companies !
And also what I said many times here, in April 1999 you had then your record foreign currencies reserves which were as high as today when measured on a Relative basis. But your currency crisis had ALREADY started 3 months earlier in......JANUARY 1999 !!!!!!!!!!!!
So far not much different !!!!!
Conclusion : it all depends of how you are going to manage your finances over the next 12 months or so and control your inflation rate ! Food prices are a very small item in the overall inflation rate ! Wages pressure are far more important in the inflation rate than food prices.
What is also sure is the non disclosed yet extend of your companies that have speculated....THE WRONG WAY !
Here and there there are some "funny" acknowledgments which are only the tip of the iceberg...so far !
Some of your large companies are in the process of having their rating downgraded, which will further INCREASES their borrowing rate despite an already austere financial world due to the liquidity crisis and risk aversion !
It will just add risk aversion to the existing.... risk aversion and liquidity crisis !!!!!
And if until recently it was nice to borrow in US$ because your currency WENT UP, MAKING the overall repayments not expensive since they were also made in US$, the opposite effect will be just as true when their borrowing rates will further go UP..... and your currency goes DOWN !!!!!
And borrowing in local currency is not good either because your borrowing rates are the WORLD HIGHEST, not only from your government but then even much much much higher re-lending from your banks !!!!!
Lowering your Government rates too much wont be of much help but still devalue your currency, because the largest costs in your filthy system is not the HIGH Government base rate, but the EVEN MORE HIGHER lending spread at which your filthy banks do business !!!! And all this with Robin the Crook blessings.....of course !!!!!!
During the upside your companies had no reason to borrow in local currency for 3 reasons : positive currency PLUS HIGH government rates PLUS very HIGH re-lending rates from your banks, and on the downside you will have higher rates due to
a) liquidity crisis b) ratings downgrades c) higher repayment costs due to your local currency devaluation against the US$ that will end up forcing your companies for whatever they can borrow AT YOUR GOVERNMENT BASE RATE .....PLUS......THE GIGANTIC SPREAD YOUR BANKS ARE CHARGING THE COMPANIES !!!!!
Simple demonstration of how INEFFICIENT BRAZIL WAS/IS and will REMAIN !!!!!
You are great in futbol, but in economy you are the champions in...AUTOGOALS...sooner or later....whatever happens !
You were and REMAIN A.....BOOM AND BUST ECONOMY....due to your lack of common sense !
Brazilians cant see the obvious !
Brazilians cant see the multi dimensions of an economy
Brazilians cant think further away than 6 months, otherwise it takes too long to be profitable ! Just look at your investments in education, healthcare and infrastructure. Wayyyyyyyyy too long to be profitable thus only small investments !
It should be mandatory in your schools and universities to read and understand the fables from Jean de la Fontaine........The Rabbit and The Turtle...and....The Crow and the Fox !!!!!!