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Global Crisis Prompts Brazil to Inject Another US$ 10 Billion in Economy

IbovespaIn order to  provide banks with more liquidity for loans to their clients Brazil's Central Bank (BC) announced Wednesday night, October 8, two additional adjustments to the rules of the compulsory deposits that Brazilian banks are required to keep with Brazil's monetary authority.

These actions should add another 23.2 billion reais (US$ 10 billion) to the Brazilian economy, with the first installment of 16.9 billion reais (US$ 7.3 billion) coming this Friday, October 10 and the remaining 6.3 billion reais (US$ 2.7 billion) early next week.

The measures occurred the same day in which six of the world main central banks decided, as an emergency step, to reduce their interest rates and thus lower the cost of money and improve consumption.

The first measure increases the financial institutions' deduction over compulsory deposits from 300 million reais (US$ 130 million) to 700 million reais (US$ 302 million) for financial institution. This action should bring 6,3 billion reais (US$ 2.7 billion) in the economy this coming Monday, according to the Central Bank's forecast.

The other measure has to do with the additional tariff of 8% over the compulsory deposits on cash or term deposits. Currently the regular aliquot for compulsory cash deposits is 45% and, for term deposits 15%. An additional 8% is charged over these amounts.

This 8% addition will be reduced to 5% starting Friday, according to the BC, allowing the release of another 16.9 billion reais (US$ 7.3 billion). The compulsory over the savings will remain at 10%.

According to the BC, this is the third alteration in the rules of the compulsory deposit since the aggravation of the international financial crisis. The whole of these changes should amount to 60 billion reais (US$ 26 billion) for the banks. Before the alterations, the BC was retaining 259.4 billion reais (US$ 112 billion) in compulsory deposits from banks.

In times of short supply of credit, as is the case now, the BC reduces this deposit increasing the available money. This Wednesday was also very unstable on the exchange rate market front, forcing the BC to use a heavy hand and intervene in the most forceful way since the beginning of this latest crisis.

It was the first time in five years that the Brazilian Central Bank sold dollars from its reserve to contain the exchange rate's escalade, holding three auctions between 10:43 am and 11:29 am, in addition to a swap auction between 14:30 pm and 14:45 pm , which had been planned the previous day.

The American currency price oscillated between 2.480 reais to 2.177 reais per dollar, finishing the day at 2.280 reais, a 1.34% decline.

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  • Show Comments (13)

  • dnbaiacu

    Joao very interesting..
    Thanks.
    Eventhough I have relatives in Brazil I have never had things explained so clearly and plainly about Brazil boom bust cycles that I really never paid attention to during my youth. Brazil was just a poor country in my mind from where my mom was from and the dollar went a long way. Nothing more nothing less.
    All this is very very interesting and I will plan accordingly. Keeping it simple! And basically find out “who” is fleeing to Brazil and for “what” reasons.

  • dnbaiacu

    Joao
    I used to think that Brazil still had more of a pseudo-prosperity period COMING.. But like I remember Ch.c saying what prosperity it would have had come to pass these past 3-4. He could be right.?????
    If this current U.S meltdown is in fact the EVENT to mobilize most nations to action., well Brazil is not immune or decoupled by ANY means.

  • dnbaiacu

    Early stage of a Bull Market….
    If Ch.c is correct with his hunch about this. This will be the perfect way to seduce G7 , G20 and G “whoever else” into the New World Order. People will be led to believe in a global bailiout system that they believe works or “saved” the day. ONLY to be threatned by a contrived COMMON ENEMY. This will further the cause of a new world government.
    If Ch.c’s hunch is NOT correct., the demise of the U.S is much sooner than anyone expected.
    Maybe Ch.c’s theory IS the calm before the storm.? It would kind of play into Obamas role pretty well. FEAR ,.. HOPE.. MORE FEAR… CONTROL.
    ECONOMIC CRISIS.. POLITICAL RESOLUTION,.. CREATED COMMON ENEMY .. MOBILIZATION AND CONTROL .. Hmmmmm 😉

  • dnbaiacu

    Ch.c is on to something.????
    [quote]I will stand in my opinion from 6 months ago whatever the outcome will be that the US$ is at an EARLY stage of a Bull Market[/quote]
    There has to be some political insight involved with this type of speculation. I just can’t imagine this being the end of the U.S being “beaten into submission”.
    UNLESS the real players are banking on the up and coming U.N. cheerleading days ALREADY? ???? I’m clueless :o. And in suspense. By the time things surface, things have been in the making LONG AGO.
    Currency trading is for the big boys. And at best little peons like myself that have interests overseas.
    But something IS in the making. ???/ How do you know if the dollar is being invested in. Or the Real is just tanking? I guess it makes no difference if you stay weighted in “cash”?

  • dnbaiacu

    Do It NOW!
    [quote]LOVING LIFE JUST HAD THE MANAGEMENT FIRM PULL MONEY FROM USA BANK TO RIO.[/quote]

    I am doing something similar BEFORE the dollar tanks. This is probably just a big wave to ride for the moment. But it is good to be on board.
    😉 😉 😉 😉

  • dnbaiacu

    The Million Dollar, Real , Euro Question….
    [quote]The measures occurred the same day in which six of the world main central banks decided, as an emergency step, to reduce their interest rates and thus lower the cost of money and improve consumption[/quote]
    Just WHO are these 6 main central banks of the world.? Where do they get their money? Do they just “print” it up like the Federal Reserve Bank? And charge the local government to borrow it . Which in turn taxes its citizens to pay the interest on these loans..????? Which theorectically is ILLEGAL.! But there is nothing that can be done about it.

    WHAT IS THEIR OBJECTIVE???????
    Lula talks about not “socializing” like the U.S . 😀 😀 😀
    Just what does he think is happening in Brazil about now? Not to mention that the injections are from “dollars” (reserved) (as I recall Ch.c commenting on) . Very interesting. 😉
    Lure…..Easy Money…..Debt…..Bailed Out… CONTROL
    WHAT IS THEIR OBJECTIVE?????

  • Falupa

    What?
    Didn’t I hear something about how great the Brazilian economy was yesterday? So why is it that they have to inject so much money into their system. In all fairness it is a global crisis and Brasil hasn’t put as much money as some of the other countries, such as the U.S. Just something to think about.

  • João da Silva

    dnbaiacu
    [quote]But like I remember Ch.c saying what prosperity it would have had come to pass these past 3-4. He could be right.????? [/quote]

    Unfortunately, an illusion was created by the Propaganda machine about the “prosperity” during the past 4 years. This so called prosperity was not brought about by the increased production, innovation, new high tech industries, etc; Our prosperity was measured by the BOVESPA index , the number of “Bolsa Familia” that was give out to the poor in the Northeast, number of ” new” oil finds by Petrobras, etc; For the past 3 years, the “easy” credit to the consumers (though the interest rate is astronomical) did keep the domestic consumption up, but nobody talked about the closure of small and middle sized export oriented industries because of the low exchange rate. Instead of exporting finished goods, we were very happy to export raw materials to China, food products to the Middle East, etc; to build up our Dollar reserves. These dollars are being spent to continue holding the exchange rate artificially low. This party is not going to last too long as $207 Billions is not that much of money. It was always an illusion to think that Brazil would not be affected by the melt down of the world economy.

    I am of the opinion that there was never really a Boom (except for the players in BOVESPA) and we are going back to the “lost” decade of the 80À‚´s if the world enters into a recession. There is no escape from it. But there again, the middle and the poor class is going to pay for the “sins” committed by our “Rulers”. We have seen this movie before. I can go on for ever, but Ch.C is better in making than point than I. 😉

  • João da Silva

    dnbaiacu
    You know whom I was remembering about? Ricardo Amaral. He predicted correctly the “Melt down” of the U.S. economy. However, he has not come in to share his thoughts about the repercussions of this crisis on Brazil . I would love to hear his comments.

  • João da Silva

    Ch.C
    [quote]And some emerging nations will go bankrupt just as in the past. Not necessarily Brazil ! [/quote]

    Ch.C, the next bloc of nations that will go bankrupt is not from the emerging (or submerging) nations.I may be wrong, but I am pretty sure that it is going to be PIGS. In case you havenÀ‚´t figured it out yet (rather unusual if you haven’t), this bloc consists of Portugal,Italy, Greece and Spain. I really do not think that it is going to be R ,I or C. You have written extensive comments about Euro Countries and I [i]always[/i] pay attention to what you write.

    [quote]Furthermore, I said to Joao months ago…SELL…SELL…SELL…SELL Brazilian real estate[/quote]

    It is not worth selling a farm land that you bought 3 years ago. But the condos are different story. The farm lands can be cultivated with [i]cash crops[/i] like the one you are doing in Western Bahia and with lower labor cost in terms of US$ (playing by the books written by the labor department) and still make a profit.

    Just think about what I said and you will partially agree with me. 😀

  • ch.c.

    I am doing something similar BEFORE the dollar tanks
    Hopefully you are right !
    Rumour being what it is, is that before the G20 meeting (Brazil Summoned – smiles) there will be a G7 meeting (without Brazil – sorry Lula) and that they may decide to…PROP UP THE US DOLLAR !
    Time will tell.

    I will stand in my opinion from 6 months ago whatever the outcome will be that the US$ is at an EARLY stage of a Bull Market !!!
    And some emerging nations will go bankrupt just as in the past. Not necessarily Brazil !
    I have an idea of who it could be, but the names are not so important.

    Ohhhhhh I got an interesting info today from Mato Grosso…….. :
    FARM LAND PRICES TANKED 50 % from its peak 5 months ago …when measured in US$ !!!!!!!!!!!!!!!!!!!
    In my view it could be right in theory….but not yet in reality !!!!
    By “in reality” I mean….no real transaction.
    Not low enough in my view. Farm land prices tanked 72 % in Brl terms from early 2004 to end of 2006.

    Furthermore, I said to Joao months ago…SELL…SELL…SELL…SELL Brazilian real estate.
    Its going to tank in BRL CURRENCY !
    Therefore I would buy Rio condos ONLY after real estate TANKED IN BRL TERMS !!!!!
    Which should end up in a double whammy…..DOWN IN BRL AND EVEN FURTHERMORE CHEAPER DUE TO US$ STRENGTH !!!!!

    There is Noooooo reason to only view real estate prices around the world and measure it in US$.
    there was a world real estate BUBBLE in local currencies.
    therefore there should be a World Real Estate BURST in local currencies.
    From Overpriced it should end up Underpriced…IN LOCAL CURRENCY FIRST !
    And real estate trends tend to be multi years…not several months.

    The foreign currency is only a DOUBLE WHAMMY factor.

    That was, that is, that will remain my analysis.

    😀 😉 😀 😉

  • JAY GLENN

    The American currency price oscillated between 2.480 reais to 2.177 reais per dollar, finishing the day at 2.280 reais[b], a 1.34% decline[/b]

    18-Oct-071.7850
    16-May-081.6410
    5-Jul-081.6069
    18-Aug-081.8928
    3-Oct-081.9661
    6-Oct-082.1968
    9-Oct-082.3158

    THE DOLLAR HAS JUMPED 29.7% since OCTOBER 18,07 .
    LOVING LIFE JUST HAD THE MANAGEMENT FIRM PULL MONEY FROM USA BANK TO RIO.

  • Jimmy

    Credit cited as main problem
    this summary from FT quite good to describe why the BC has acted as it has and about prospects for coming year
    although 3.5% (IMF) growth for next year is poor…
    http://greenbrazil.wordpress.com/2008/10/09/brazil-and-the-financial-crisis/

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