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Wednesday, February 27, 2008

The Real Continues Its Upward March

Brazil's real strengthened for an eighth straight day today, alomst reaching a nine-year high, as a tumbling U.S. dollar and surging commodity prices boosted demand for the currency. The real has jumped 4.8 percent since Feb. 15, making it the biggest gainer against U.S. dollar among the world's 16 most actively traded currencies during the period. The consecutive gains are the longest winning streak since November 2005.

Bolstering the currency's allure today were comments from U.S. Federal Reserve Chairman Ben S. Bernanke suggesting that the Federal Reserve will continue to lower US interest rates, widening the yield advantages of Brazilian bonds and equities.

The real rose 0.65 percent to 1.6731 per dollar at 10:28 a.m. New York time, up from 1.6839 per dollar yesterday. At one point it touched 1.6734, the most since May 1999. The currency has strengthened 28 percent in the past 12 months, also the biggest gain among the major currencies against the dollar.

Brazil's real interest rate, calculated by subtracting annual inflation of 4.56 percent from the 11.25 percent Selic benchmark lending rate, is 6.79 percent.

Crude oil also rose above $102 a barrel today, the highest dollar level ever, as the weakening dollar led investors to buy commodities as a hedge against inflation. Brazil exports the crude oil it pumps from what are the deepest waters in the world, with recent discoveries in fields as deep as 6 kilometers (3.7 miles).

Commodity sales helped Brazilian exports rise to a record $160.6 billion in 2007. Brazil will export as much as $180 billion this year, according to Trade Ministry estimates.

Friday, February 22, 2008

Brazil Becomes Net Creditor for First Time in January 2008

Brazil, the world's largest emerging-market debtor for decades, became a net foreign creditor for the first time in January. International reserves, swelled by investment inflows and record exports of agricultural commodities and oil, probably exceeded gross foreign liabilities last month by about $4 billion, the Banco Central do Brasil said today in a report.

Brazil's shift to net creditor status may add to already growing investor confidence in what is Latin America's largest economy and help the country achieve investment-grade rating. Brazil finished paying off its debt to the International Monetary Fund in December 2005.

Brazilian exports have tripled since President Luiz Inacio Lula da Silva took office in 2003 on rising world demand for soybeans, iron-ore, beef and cars. An accompanying surge in foreign direct investment, including stock and bond purchases by non-residents, has led the currency to appreciate to what is its strongest level in more than eight years.

International reserves, including cash and other financial assets, rose to a record $171.6 billion in January, more than ten times the $17 billion that the country had when Lula assumed power. At the end of 2003, Brazil's debt topped international reserves by $165 billion, the bank said.

Foreign bond buyers have been lured by the prospect Brazil could attain an investment grade rating this year or next, making the country's bonds the world's second-best performer over the past five years, returning 191 percent, according to JPMorgan Chase & Co. data. Only Ecuadorean bonds, which gained 234 percent, rose more.

Brazil's foreign currency debt rating of BB+ by Standard & Poor's and Ba1 by Moody's Investors Service are both one level below investment grade. Investment-grade standing gives a country greater access to international capital at lower borrowing costs.

The yield to the 2015 call date on Brazil's 11 percent bonds due in 2040, one of the most widely traded emerging-market securities, fell 9 basis points, or 0.09 percentage point, to 5.59 percent, according to JPMorgan Chase & Co. The bond's price rose 0.6 cent to 132.65 cents on the dollar.

The world economic slowdown may test whether Brazil's efforts to diversify export markets and bulk up reserves are enough to safeguard long-term growth after almost five years of record commodity exports and low borrowing costs.

An over-dependence on commodity sales abroad may cut Brazil's growth to 3 percent this year from about 5 percent should a slowing U.S. economy reduce demand, according to a Morgan Stanley report released Dec. 10.

The real rose for a fourth straight session, advancing 0.8 percent to 1.7095 per dollar today. It touched 1.7046 earlier in the day, the strongest level since May 1999. The central bank has purchased U.S. dollars in currency markets almost every day since July 2006 to slow the real's appreciation and increase international reserves.

In a separate report, the bank and the National Treasury said that local and foreign debt fell 1.7 percent to 1.31 trillion reais in January from December. The stock of local debt, which makes up 90 percent of total Brazilian liabilities, fell 1.7 percent and foreign debt dropped 1.4 percent last month, both institutions said.

Friday, February 08, 2008

Brazil Industrial Output December 2007

Brazil's industrial production in 2007 expanded at the fastest pace in three years, fueled by domestic demand and investments to boost production. Output rose 6.4 percent in December from December 2006, pushing the annual rate for 2007 up 6 percent, twice the pace of 2006, the national statistic agency said in a statement distributed today in Rio e Janeiro. In 2004, output grew 8.3 percent.

Brazil's unemployment rate fell in December fell to the lowest since at least 2002 as companies added staff to step up output. More jobs coupled with record bank lending boosted consumption and spurred investments. Output of capital goods, which increased 19.5 percent in 2007, led industrial growth. Production of durable goods, the second best performer, rose 9.2 percent.

Brazil's central bank has kept the benchmark interest rate at 11.25 percent since September and the possibility of rate increases in 2008 to keep inflation under control remains.

Friday, February 01, 2008

Brazil Trade Surplus January 2008

Brazil's trade surplus narrowed to a 5 1/2-year low in January as a cheaper dollar and rising consumer demand pushed imports to a record high. Imports increased to $12.3 billion in January from $10.6 billion in December, according to the Trade Ministry today. Exports fell to $13.3 billion in January from $14.2 billion in December.

Brazil's real has appreciated 20 percent against the dollar in 12 months, the best performance among the 16 most-actively traded currencies. The cheaper dollar coupled with the fastest economic expansion since 2004 has boosted demand among Brazilian consumers for imports.

At the same time we learn that coffee exports from Brazil, which is the world's biggest producer, fell 11 percent in January from December, according to Brazil's Coffee Exporters Council.

Brazil shipped 1.81 million bags of coffee beans last month, compared with 2.03 million bags a month earlier, the council, known as Cecafe, said today in a preliminary report.

``The situation can deteriorate if the global economy slows,'' Agostini said.

Brazil's monthly imports exceeded $10 billion for the first time ever in July and have since remained above this threshold.

Agostini expects the country's annual surplus to narrow to $30 billion this year from $40 billion last year.