Big Surplus Keeps Dollar Down in Brazil

The Central Bank’s weekly survey of market analysts and financial institutions (known as the Focus Bulletin) found that the forecast for the 2006 increase in the Broad Consumer Price Index (Àndice Nacional de Preços ao Consumidor Amplo) (IPCA) is 4.66%, which is slightly higher than the government’s target of 4.50%.

The survey also found that the market forecast for the 2007 IPCA increase rose from 4.05% to 4.20%.

Brazilian exports have gotten off to a very strong start this year. The surplus for the year (up to February 10) has already reached US$ 3.870 billion, up 19.59%, compared to the same period in 2005.

So far, total exports for the year are US$ 12.939 billion and imports US$ 9.069 billion. Both up: 24.1% and 26.2%, respectively.

For the week ending February 10, exports totaled US$ 2.375 billion and imports US$ 1.494, for a surplus of US$ 881 million.

The Central Bank’s weekly market survey, the Focus Bulletin, has found that market analysts and financial institutions believe in a further devaluation of the dollar against the real – Brazil’s currency.

Last week the market forecast was for the dollar to close out 2006 at 2.35 reais. This week it fell to 2.30 reais. The forecast for 2007 also dropped: down from 2.50 to 2.40 reais.

The principal reason for the dollar devaluation is the surge in Brazil’s foreign trade surplus. Last year it reached US$ 44.7 billion. And market forecasts are for it to close at around US$ 40 billion again in 2006.

At the same time, the market forecast for the 2006 current account surplus rose from US$ 8 billion to US$ 9 billion. And for 2007, the forecast for the current account surplus rose from US$ 4.25 billion to US$ 5.25 billion.

Market forecasts for domestic economic performance are less upbeat. GDP growth for 2006 is expected to close out the year at 3.50%, with a sluggish 4% increase in industrial sector output. The forecast for 2007 is a GDP increase of 4.13%, down from last week’s forecast of 4.25%.

Forecasts for the 2006 net debt/GDP ratio went from 50.45% to 50.50%. And for the 2007 net debt/GDP ratio it went from 48.70% to 48.90%.

With regard to interest rates, the forecast for the benchmark Selic is for it to close out 2006 at 15%, and drop to 13% by the end of 2007.

ABr

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