Wednesday, December 10, 2008

Brazil Rate Meeting Tonight.

The Central Bank of Brazil meets tonight for the final time of 2008. There has been considerable uncertainty over the direction the CB will take. President LuLa has been calling for the CB to cut rates. Slowing growth numbers (except for the other days GDP number) and lower Inflation numbers led many to expect just such a move. However the CB has not been as negative on growth as the market and they seem afraid that further cuts in rates can make the weak currency situation move out of control. The currency has moved from 1.5600 to 2.5000, this with the CB in aggressively everyday to attempt slow the move.

On the growth front a number of corporations have announced suspensions or resizing of expansion plans. Confidence surveys are running low and crude prices are in free fall. Car sales in Brazil (like everywhere else) have collapsed. This is a key sign to me that everyone is tightening their belts. Remember if car sales slow, then there is a spillover effect. Steelmakers already facing a slowdown in demand globally are now hit here once again. From an employment stand point things do not look quite so bad. Brazil posted their lowest unemployment rate in the new historical series by IBGE, this while the total wage bill grew by above 8% in the last 12 months. All this being said I do not think inflationary pressures are present in Brazil. Therefore the uncertain nature of the economy lends itself to a wait and see approach. I see no change in rates from the Central Bank.

Good Luck and Good Currency Trading



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