Brazil is facing a situation not to dissimilar to India (discussed here). In order to stem the recent currency declines, the central bank (BCB) has raised the benchmark rate.
Unlike the situation in India however, Brazil is also struggling with declining demand for natural resources (see post), particularly given its economic ties with China. The trade surplus the nation has enjoyed for years is beginning to erode.
|Source: Credit Suisse (* CS forecast)|
While the official unemployment rate remains near the lows, consumer surveys are pointing to weakening labor markets.
Because of deteriorating economic fundamentals and ongoing flight of capital, some of which is due to surprisingly broad and persistent social unrest (see post), the currency hit a new multi-year low against the dollar. BCB’s recent efforts to stem the declines are proving unsuccessful thus far.
|USD/BRL (real per one dollar; source: Investing.com)|