Brazil: Interest Rate (Selic) - Meeting of 30.Nov

The Brazilian "FOMC" announced today the new basic interest rate (Selic). The Selic rate dropped from 11.5% to 11%, the third consecutive fall. The Central Bank has signaled that the process of falling interest rates would be "moderate", and therefore, the rate was in line with the market forecast. However, the worsening in international crisis and the slowdown of domestic activity is leading the market to predict further falls in interest rates. Today, the future yield curve is consistent with a fall of 1.5% divided between the three forthcoming meetings of Comittee of Monetary Policy.

Despite this fall, interest rates in Brazil are still among the highest in the world.

Source: Central Bank of Brazil

Brazil: Debt Securities Indexed by Selic Rate

The Brazilian federal public securities debt reached USD 1.733 billion in October. The cost of this debt is divided as follows: 35.8% of the debt securities are fixed-rate, 33% is in inflation-linked bonds and the 30.3% are valuated daily by the Selic rate. Debt valuated by the Selic rate is an important data, because its cost varies immediately with the interest rate set by the Monetary Policy Committee. In recent years, this proportion reached 60% in 2005 but is now at their lowest levels, as seen in the chart below.

Source: Central Bank of Brazil

Brazil: Current Account - Interest Expenses

The item "Interest Expense" Balance of Payment of Brazil showed a deficit of USD 784 million in October 2011, resulting from a gross expenditure of USD 1.276 billion and revenues of USD 492 million. Over the past 12 months, as we see in the chart below, the net interest payments amounted to USD 8.5 billion. It is interesting to note in the chart that the income from interest payments increased in the period 2007-2009. It´s a period related with accumulation of international reserves, which, of course, led to a higher revenue of interest. On the other hand, since 2009 interest revenue has decresead, mainly as a result of lower international interest rates, and consequently, lower remuneration of Brazilian assets abroad.

 See also:

Brazil: Current Account - Profit and Dividends

Brazil: International Reserves

Brazil and Exchange Rate Policy

Source: Central Bank of Brazil

Brazil: Credit Operations According to the Capital Control of Lenders

The balance of credit operations the Brazilian financial system reached USD 1,946 billion in October of 2011, equivalent to 48.5% of GDP. Government financial institutions accounted for 43% of the total. The national private institutions had 40% of the volume and foreign institutions, 17%.

The graph below illustrates this distribution of the credit according to capital control of institutions.

Source: Central Bank of Brazil

Brazil: Balance of Payments

In October, the current account balance had a deficit of $ 3.1 billion, and in the year, accumulated deficit of USD 39 billion. This balance was offset by the financial account, which amounted to USD 3 billion in the month.

In the year, the financial account was positive with a surplus of USD 95 billion, of which USD 68 billion in foreign direct nvestments and USD 24 billion in portfolio investment. The portfolio investiment includes debt securities and capital inflow to stock market. The result was an increase in the volume of international reserves by USD 57 billion in 2011.

The table below shows the main figures of Balance of Payments of Brazil.

Source: Central Bank of Brazil

Brazil: Gross Public Debt

The Brazilian gross public debt achieved 55.4% of GDP in October, according to data released today by the Central Bank. There was a fall of 0.4% compared to September 2011 and an increase of 0.69% compared to December 2010.

The main factors that contributed to the behavior of gross debt in 2011 was the effect of GDP growth, which reduced the debt at 4.7%. On the other hand, interest payments contributed to the increase of ratio gross debt to to GDP by 5.2% in the period.

The following chart shows the recent evolution of the gross debt over GDP.

Source: Central Bank of Brazil

Brazil: Unemployment Rate Between Genders

The unemployment rate, released by the IBGE (Brazilian Institute of Geography and Statistics), reached 5.8% in October. This rate varies significantly between genders. In the male population, the unemployment rate reached 4.5%, while the female population has a rate of 7.2%. Historically, the unemployment rate of the female population has been higher than the male, as seen in the graph below:

Source: IBGE

Brazil: Interest Rate for Credit Operation

Interest rates for loans to individuals rose in October to 47% per year, compared to 47.7% in September, despite the fall in basic interest rates. The rates for corporate entities showed a small drop, from 30% a.a. in September to 29.8% a.a. in October.

The chart below shows the recent evolution of interest rates for credit operations in Brazil.

Source: Central Bank of Brazil

Brazil: Volume of Exports

Although Brazilian exports show a tendency of increase, the export volume is flat, and even a small downward trend in recent months. The quantum index of exports grew by 3.8% in 2011, but it is only 10% higher than in 2006.

The chart below shows the recent evolution of the quantum index of Brazilian exports.

Source: Funcex

Brazil: Imports from China

Brazilian imports from China have been growing at a strong pace. In the early 90s, these imports were not significant, and represented less than 0.5% of total Brazilian imports. In October 2011, the latest available data, they reached USD 3.4 billion and represented 17% of total imports. The following chart shows the evolution of Brazilian imports from China.

Source: MDIC and IPEADATA

Brazil: Tax Collection

The gross taxes collection of the Brazilian Central Government was BRL 78.5 billion in September, with a nominal increase of 4.7% over the previous month and 21.8% over the same month last year.

Over the past 12 months, the total revenue to GDP ratio reached 24.2%, a substantial increase compared to recent period. In 1998, for example, this ratio was 17%, as we can see from the chart below.

These figures do not include taxes collection from the States and Municipalities.

Source: Central Bank and Brazilian Treasury
Elaboration: the author

Medium Term of Brazilian Federal Debt

The average term of the federal public debt was 40.9 months in September. In September 2010, the average term was 40.2 months. The chart below shows the evolution of the average term of federal debt in recent period.

Source: Central Bank of Brazil

Brazil: Job Creation

Today, the data from Caged (General Register of Employed and Unemployed) was released. The Caged is a data bank related of the Ministry of Labor with monthly survey on the behavior of the registered labor market. The survey data are obtained from information submitted by companies on admissions and dismissals of employees.

The Brazilian economy has created 126,143 jobs in October with a formal contract. Over he year, 2,241,574 jobs have been opened. In the previous month, fell by 39.7% in the creation of jobs (in September, the country recorded the formal creation of 209,078 jobs). In comparison with October of last year, the decrease recorded in the generation of jobs was 38.4%.

Among the sectors that generate employment are services (77,201), trade (60,878) and construction (10,298).

 The grafics below shows the tendency of job creation in Brazil in the recent period.

Source: Ministry of Labor

Brazil: Structure of Exports

The strong increase in commodity prices has changed the structure of Brazilian exports in the last decade. In 2000, the value of exports of commodities corresponded to 23% of total exports. In 2011, exports of primary products reached 49% of total exports, while the share of exports of manufactured and semi-manufactured goods accounted for 51%. The graph below illustrates this data.

Source: MDIC

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Brazilian Industry: Production vs Employment

Last week, IBGE (Brazilian Institute of Geography and Statistics) released data about employment in the industrial sector. The research is conducted in 18 major industrial activities and showed a decrease of 0.4% in September over the previous month. The following chart shows the relationship between output and employment growth in the industry. While the industry output had an annual average growth of 2% between December 2000 and September 2011, the employment grew by only 0.36% per year. Another important point is that industrial production recovered from the crisis of 2009 and it is just 1.5% below the maximum level, while the employment rate is still below 4%. Both industrial production and employment in the industry had a very poor performance in this period, and the main explanation for this performance was the appreciation of the Brazilian Real against the dollar, especially in the period after 2009, which meant that the industry suffered a very strong competition from imported goods.

Source: IBGE

Brazil: Relief in Credit Tight

On November 11, 2011, the government announced measures in order to ease the credit, reversing some of the measures adopted in late 2010. Among the measures adopted in late 2010, we can cite the increasing in capital requirements, and the increasing in compulsory deposits. The aim of these measures in 2010, was to discourage economic activity, because the government’ analysis at the moment was that the level of activity was being very strong and could jeopardize the control of inflation.

The following chart shows the evolution of compulsory deposits of the financial system. At the end of 2008, there was a reduction of reserve requirements due to the global crisis, which was reversed in early 2010. At the end of 2010, there was an increase in the reserves requeriments (about BRL 80 million, in a base of approximate BRL 300 million).

With the economy already in a slower pace, the Central Bank decided to dismantle partially of the "package" of 2010, with relief in capital requirements for banks. There was not, at least for now, the reversal of the rise in compulsory deposits requirements.

Source: Central Bank of Brazil

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Brazil: Exports to European Community

Despite the crisis in Europe, Brazilian exports to the countries of the European Community are not being affected. Exports to the European Community amounted USD 43.134 billion in 2010 and USD 39.74 billion in 2011 up to month of September. The growth was 29%, comparing the first nine months of 2011 with the same period in 2010 (USD 30.78 billion), very close to the global growth of Brazilian exports, which was 31% in the same period. The following chart shows the evolution of Brazilian exports to Europe in the period 2010-2011.

Source: MDIC

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Brazil: Gross External Debt

The gross external debt of Brazil is USD 396 billion and is composed as follows: the Brazilian government has debt of USD 60 million, the banks USD 134 million and the other economic sectors, including manufacturing and services, USD 93 billion. The inter-companies loans of international companies established in Brazil represent the amount of USD 105 billion. The chart below shows the gross external debt. The last data avaliable is of June.2011

Source: Central Bank of Brazil

Brazil: Net External Liabilities

The stock of foreign direct investment in Brazil, according to Central Bank data (most recent data of international investment position is June.2011) is USD 534 billion. The total investment in portfolio is USD 677 billion, of which USD 420 billion in equity securities and USD 257 billion in debt securities. The total of loans is USD 171 billion and other liabilities, USD 21 billion. Thus, Brazil's gross external liability is USD 1.4 trillion. The value of Brazilian assets abroad is USD 672 billion, as we can see from the chart below. Therefore, the Brazilian net external liabilities reached USD 731 billion.




Source: Central Bank of Brazil

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Brazil: Inflation

In October, the IPCA inflation reached 0.43% and 6.97% over the last 12 months. The inflation rate may be shared in three product categories: (i) supervised prices, which the government sets the rules for their adjustment, (ii) tradable, where prices are heavily influenced by international prices and (iii) non-tradable, composed mainly of services and products that are not subject to international prices. Each of these three components corresponds to approximately one third of IPCA index.

The prices of tradable and supervised goods rose, 5.9% and 6.3% over last 12 months, respectively. The non-tradable prices rose 8.4% over last 12 months, above inflation. The chart below shows the evolution of IPCA index, tradable and non-tradable prices.

The conclusion of these figures is that the inflationary pressure is occurring mainly in the prices of products that do not suffer from international competition. This is due to a favorable situation on the domestic market, with tight labor market pushing wages and strong activity level, though the slowdown in the recent period, which has allowed the increase in consumer prices.



Source: IBGE

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Brazil: Retail Sales in September 2011

Brazil: Interventions on dollar market

Brazil: Market Expectations for Inflation

Brazil: Public Sector Borrowing Requirements

Brazil: Retail Sales in September 2011

The retail sales volume index went up 5.3% in September, compared to same month in the previous year, according to IBGE. In relation to August, it fell by 0.4%. The retail nominal revenue rose 11.1 % compared to same month in the previous year and 1.1% over the month before. The following chart shows the evolution of the volume and revenue indexes of retail sales.

Source: IBGE

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Brazil: Net Public Debt in September 2011

Brazil: Interventions in Spot Exchange Market

The total value of Central Bank interventions in dollar spot market reached USD 41.5 billion in 2010 and $ 47.9 billion in 2011 until early November. The last day that the Central Bank bought dollars was on September 15. After this date up today, with the higher volatility of the exchange rate, the Central Bank interventions preferred intervention through selling exchange swaps and did not conducted any operation on the spot market. The chart below shows the evolution of interventions since begining of 2010



Source: Central Bank of Brazil

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Brazil: Market Expectations for Inflation

The Central Bank conducts a weekly survey on the market about expectations of various economic indicators, including inflation. In the latest survey, carried out up to the day on November 4, CPI projections (measured by “IPCA” )for 2011, 2012 and 2013 were respectively 6.50%, 5.57% and 4.90%. The chart below shows the recent evolution of inflation forecasts for these years.

Source: Central Bank of Brazil

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Brazil: Producer Price Index

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Brazil: Public Sector Borrowing Requirements September 2011

The primary surplus over 2011 reached 3.50% of GDP up to September. Despite the high primary surplus compared with previous years, as we see in the chart below, the interest expenses were also high, reaching 5.93% of GDP, and resulted in a nominal deficit of 2.43% of GDP.

Source: Central Bank of Brazil

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Brazil: Net Public Debt in September 2011

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Brazil: Net Public Debt in September 2011

In September, Brazil's public debt reached USD 1.48 trillion, down 4.4% over the previous month. In relative terms, the debt reached 37.16% of GDP in September from 39.20 in August. However, a significant share of this decline is related to currency devaluation, because the Brazilian government has cash with in dollars. The effect of exchange rate variation meant a decrease of 2% of public debt relative to GDP.

Source: Central Bank of Brazil

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Brazil: Producer Price Index

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Brazil: Foreign Direct Investment

Brazil: Producer Price Index

The producer price index measured by the IPA-M reached 0.68% in October, and 6.9% over 12 months, but with a downward trend, as seen in the chart below.

Source: FGV

Brazil: Trade Balance in October 2011
Brazil: Exchange Rate in October 2011
Brazil: Average Real Salary




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Is There Really a Bubble in Real Estate in Brazil?
Impact of Global Crisis in Brazil
Brazil and Exchange Rate Policy

Brazil: Industrial Production

In September, industrial production dropped 2% compared to the previous month and 1.6% compared to September 2010. The chart below shows that industrial production is in a flat trend, and is at a level below the peak pre-crisis 2008.

Source: IBGE

Brazil: Trade Balance in October 2011
Brazil: Exchange Rate in October 2011
Brazil: Average Real Salary




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Brazil :Foreign Direct Investment

Foreign direct investment reached USD 6.3 billion in September and $ 50.4 billion in the year. Over the past 12 months, accumulated 84.1 billion, equivalent to 3.6% of GDP. The monthly data for 2011 are in the chart below.

Source: Central Bank of Brazil

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Brazil: Trade Balance in October 2011
Brazil: Exchange Rate in October 2011
Brazil: Average Real Salary




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Impact of international prices on Brazilian Trade Balance
Is There Really a Bubble in Real Estate in Brazil?
Impact of Global Crisis in Brazil
Brazil and Exchange Rate Policy

Brazil: Trade Balance in October

In October, the trade balance surplus reached USD 2.355 billion, with exports of USD 22,14 billion and imports USD 19,785 billion. In 2011, the surplus of trade balance is USD 25.3 billion, up 75% over the same period of 2010. The graphic below shows the evolution of trade balance in 2011.

Source: Secex

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Brazil: Exchange Rate in October 2011
Brazil: Average Real Salary
Brazil: Delinquency



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Impact of international prices on Brazilian Trade Balance
Is There Really a Bubble in Real Estate in Brazil?
Impact of Global Crisis in Brazil
Brazil and Exchange Rate Policy

Brazil: Exchange Rate in October 2011

In October, the dollar dropped 9% in relation to Brazilian currency “Real”, from BRL 1.8544 to 1.6885. In 2011, the dollar acumulated a rise of 5.01% comparative to Real. The chart below shows the evolution of the exchange rate in October 2011.

Source: Central Bank of Brazil

See also the last news:

Brazil: Average Real Salary
Brazil: Delinquency
Investment in Brazilian stocks by Foreign Investors



See the last articles:

Impact of international prices on Brazilian Trade Balance
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Brazil and Exchange Rate Policy