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Brazilian Current Account Widens Further

James Boston
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Brazilian Current Account Widens Further

The Brazilian Real has been making steady gains over the past week despite a series of question marks remaining around the true prospects for the economy. This morning’s Current Account figure does not serve to substantiate any projections of an improvement in economic performance, at least not in the short term. The latest reading of the Current Account, for the month of October, is showing a further widening of the deficit to -US$8.13Bn, this is a marginal deterioration of the September number of –US$7.91Bn and comes as a disappointment to analysts that had been anticipating an improvement in the deficit to –US$7.5Bn.

Despite this deterioration in the fundamental budget situation during the month, international investor sentiment appears to remain solid. The Foreign Direct Investment (FDI) amount actually increased substantially on the month from US$4.21Bn to US$4.98Bn, based on the uncertainty of the Presidential race outcome at the time market analysts had anticipated the FDI figure falling to around US$4.21Bn.

The re-election of Dilma Rousseff in a very tight presidential run off election prompted many investors and analysts to turn negative on the prospects of the Brazilian economy, the primary concern being her lack lustre track record with regard to the management of the economy. President Rousseff however has reaffirmed her commitment to the Brazilian economy and it now appears that this is more than just rhetoric, an overhaul of her top economic team is set to bring in some respected heavy hitters that hold the respect of the markets due to their private sector experience and pro market values. The new team will have their work cut out for them, Brazil’s interest rate now stands at 11.25% following a central bank hike last month aimed at curbing inflation. The latest consumer price index numbers however do suggest some cooling in price growth which will give the new administration some scope to get off to a good start.

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