Market Analysts Up Their Bets for Brazilian Economy

Garoto chocolate factory in Brazil Specialists in Brazil's financial market have started believing in better results in the economy and have made some corrections to their previous forecasts. According to the Focus Bulletin, disclosed today, May 28, by the Brazilian Central Bank (BC), the average expectation of hundreds of market analysts heard last Friday, May 25, is that Brazilian industrial production should grow 4.19% this year, and not 4.07% as forecasted in the previous week.

They also corrected their forecasts for Gross Domestic Product (GDP) growth, which is the total of production in the country, and estimated that it will grow 4.16% in the year, against a forecast of 4.10% in the previous research.

The expectation of analysts was also revised up with regard to the trade balance surplus. The forecast last week had been for a trade balance surplus of US$ 41.10 billion in the year, and was altered up to US$ 42 billion.

The BC study maintained its expectations of US$ 20 billion in foreign direct investment (FDI) in the productive sector. The analysts also forecast that the benchmark interest rate (Selic), currently at 12.50% a year, will drop to 12% at the next Monetary Policy Committee (Copom) meeting, to take place next week (June 5 and 6), and may reach 10.75% this year, dropping to 10% next year.

On February 28 it was announced that the Brazilian foreign trade reserves had exceeded the US$ 100 billion barrier for the first time in history. The news was given by the Brazilian Central Bank (BC), which disclosed that foreign currency reserves – a kind of savings account that the country has for possible economic shocks – reached US$ 100.3 billion.

Finance minister Guido Mantega commemorated the fact stating that it "makes the country more resistant to the foreign turbulence that occasionally materializes." And the minister recalled that the financial market is nowadays "powerful and boosted", and that Brazil has large reserves to be able to face the situation if there is a large outflow of investment. "With the reserves, we will be vaccinated against international turbulence," he guaranteed.

International reserves are composed of dollars entering the country due to exports and to financial investment and also due to purchases of the dollars made by the BC. To purchase the dollars, the BC sells treasury bonds corrected by the Brazilian benchmark interest rate, the Selic, currently at 13%.

When the organization invests the dollars abroad, the remuneration is approximately 5%. The cost to the country of the purchase in dollars is 8%, and therefore analysts criticize the reserve replenishing policy that the BC put in place in 2004.

Mantega stated that it is due to the security that Brazil is immune to turbulence that countries now loan money to the country at lower interest rates. "The security we currently have that turbulence does not affect us is worth gold."

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