Currency Crises - External Sector and Foreign Reserves

CEIC Gallery/Hot Topics/Global Database/Part 2 - February 11, 2016 External Sector and Foreign Reserves Brazil Despite the weak real Brazilian exports has suffered substantial decline over the last one year. In October and November 2015 the exports dropped on annual basis by 12.4% and 11.8% respectively and in December 2015 it decreased by 4.1%. On the other hand, Brazilian trade balance has improved in 2015 and has turned to a surplus after the deficits in the last two quarters of 2014 and the first quarter of 2015. However, the trade surplus’ increase in the recent months is due to the weak imports triggered by the economic downturn, rather than improvement in country’s competitiveness. Brazil’s international reserves remain stable, but the central bank might need to use them to support the currency due to the weak exports, capital flight and increasing short term external debt. Interest and Foreign Exchange Rates Brazil In September 2015 the real’s exchange rate dropped to 3.9 per US dollar, which was the lowest level since it has been introduced. Real effective exchange rate (REER) has declined by 19.5% in 2015 and now is far below its normal levels. Interest rates in Brazil has increased in 2015. Real interest rate differential with the benchmark interest rate in the United States has soared to more than 34% points indicating increasing risk in the country. Monetary Sector Brazil Broad money growth in Brazil has slowed down in 2015 compared to the previous year as the average annual growth fell to 6.7% in 2015 from 11.8% in 2014. M2 money multiplier has remained stable at 8.9 from 8.2 at the end of 2014. On the other hand, the ratio of broad money to international reserves has fallen to 1.7 from 2.3 in 2014. Domestic credit growth has also slowed down in 2015. After it hit a two-year peak of 13.6% annual growth in January, it has declined to 7.9% in November. Bank deposits growth has slowed down to 6.6% - the slowest pace since 2009. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
12th February 2016 Currency Crises - External Sector and Foreign Reserves

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