Tuesday, March 13, 2012

Brazil fights currency war as rand puts brake on oil

Brazil has put currency wars back on the global agenda. In 2010, the country’s Finance Minister Guido Mantega complained that unwanted foreign inflows were driving up the Brazilian real and he introduced measures to moderate the currency’s strength.

The emerging Latin American giant is once again trying to weaken its currency. The real has appreciated about 6 percent this year, according to Bloomberg.

And CNN reported that Mantega has repeatedly blamed rate cuts by central banks in the US, Europe and Japan for unleashing a “monetary tsunami”.

After news that economic growth fell last year to 2.7 percent from 7.5 percent in 2010, the authorities took action.

On Wednesday, the Brazilian central bank cut its benchmark Selic rate by 75 basis points to 9.75 percent, despite the fact that inflation was over 6 percent in January. The next day, the government extended the transaction tax on foreign borrowing, introduced in 2010. And it intervened in the market with its own transactions, designed to keep the currency down. Read More