Brazil Betting on Dollar Falling and GDP Rising

The exchange rate in Brazil this year is not expected to exceed 2.93 reais per US dollar at the end of December, accordng to the market analysts consulted last week by the Brazilian Central Bank (BC).

Last week’s issue of the Focus Bulletin, which is based on the BC’s weekly survey of financial institutions and market analysts and released every Monday, indicated a probable exchange rate of 2.95 reais for year-end 2004 and an anticipated increase to R$ 3.10 in 2005.


As a result of the calm on the international market, with the dollar quoted at 2.82 reais last Friday, November 5 – the lowest level since February of this year – and the gradual return of normalcy to the world oil market, the analysts continue to expect the government’s benchmark interest rate (Selic) to end the year at 17.50% [it is currently set at 16.75%] and see no short-term reasons for the exchange rate to move higher.


Another powerful motive for this, in their opinion, lies in the growth of Brazilian exports, which they expect will contribute to a record US$ 33 billion trade surplus this year, as against US$ 27.30 billion next year.


This factor also exerts a decisive influence on the foreign current accounts surplus, which they expect to reach US$ 10.20 billion this year and US$ 3.61 billion in 2005.


These numbers, together with the prospect of a 7.30% growth in industrial production (4.23% in 2005), led them to raise their projection for this year’s growth in the Gross Domestic Product (GDP) from 4.56% to 4.58% and maintain their prognosis of 3.50% for 2005.


This increase in the GDP contributes to a slight reduction in the ratio between net government debt and the total of wealth produced in the country (GDP).


This ratio, which the market estimated last week would end the year at 55%, was lowered to 54.85% for this year and 54% in 2005.


Agência Brasil
Translator: David Silberstein

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