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The Real is no longer worst BRIC currency

posted Jul 19, 2012, 11:10 AM by Fernando Mello   [ updated Jul 24, 2012, 6:37 PM by Webmaster IMGroup ]
The Brazilian government is taking off measures adopted earlier this year to weaken the Brazilian currency and protect local industry

Blake Schmidt and Joshua Lionel, the inShare7
Sergio Moraes / Reuters

The Real should accumulate the biggest gain among emerging market currencies

Sao Paulo - The Real is abandoning the currency position with the worst performance among the major developing countries. Recovery is the effect of central bank operations in derivatives markets and the lifting of barriers to foreign investment.

The fall of 7.2 percent of the Real accumulated since May 1 became smaller than that of the South African rand and the ruble. The Russian currency led losses among the largest emerging economies, while the European debt crisis deepens. Public bonds issued in Reais lost 5.3 percent in dollars over the same period, compared with 10.6 percent devaluation of the ruble pegged roles, according to figures from JPMorgan Chase & Co.

The Brazilian government is taking off measures adopted earlier this year to weaken the real and protect local industry, while the debt crisis of European investors away from currencies of developing countries. The Real should accumulate the biggest gain among emerging market currencies, rising 8.7 percent in the fourth quarter, according to median of forecasts from 26 analysts surveyed by Bloomberg.

"Before, we had a Central Bank that was actively selling its currency and now we have a bank on the other side of the operation," said Tony Volpon, Latin American strategist at Nomura Holdings Inc., in a telephone interview.

Although the yield of securities denominated in Reais due in 2013 have collapsed 232 basis points this year to 7.83 percent, the devaluation has eroded the return in dollars, according to data compiled by Bloomberg.



"Excessive liquidity"

The government withdrew the tax rate of 6 percent financial transaction tax on foreign borrowing maturing in more than two years to help companies and banks to roll over debt, said yesterday the finance minister, Guido Mantega. The tax was part of a series of measures announced in the last 19 months to curb foreign investment. The flow of foreign capital helped the country to have a real appreciation of 24 percent between late 2008 and 2011, the biggest gain among emerging markets. The actual accumulated decrease of 9.9 percent this year.

Mantega said the "excess liquidity" that led to capital controls ceased to exist with the worsening of the debt crisis in Europe. Investors rejected emerging market assets, before the redemption of up to 100 billion euros for Spanish banks and growing concerns that Greece may abandon the common currency after the elections of June 17.

"Before the crisis worsens, it was easier access to long-term credit," Mantega told reporters in Brasilia. Brazilian banks and companies need to "roll over loans" and "it makes it easier," he said.
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