Brazil is now the world’s sixth largest economy. The country has the biggest economic potential among the Latin American countries. One of the major industries in the country is manufacturing.
The currency of Brazil is the real (BRL, R$). Its rate is set during the U.S. trading session. It is considered to be one of the most stable currencies in the world. The central bank of Brazil follows to a strict monetary policy aimed at maintaining high rate of the national currency. In July 2011 the rate was USD 1 to BRL 1.6. High rate is the result of the bank keeping high key interest rates and attracting investments. According to the World Bank, net portfolio equity inflow was $38 bln in 2010, inflow of direct investments totaled $48 bln.
Nowadays there is a 1% tax on short U.S. dollar positions on futures market. It was introduced in 2011 in order to limit foreign exchange speculations.
In 2012 the Brazilian real proved to be the worst-performing currency among the currencies of developing countries. It had lost about 12% of its price within two quarters of 2012. The USD/BRL rate was 1:2.07 by the end of 2012. According to statistics offered by the central bank of Brazil, the rate rose by 0.7% in December 2012.
In terms of easing the pressure Brazil’s regulator cut its benchmark interest rate nine times during 2012. As a result, it was decreased by 5%. In January 2013 it was narrowed to a record low of 7.25%. Loosening the credit climate and offering more favourable conditions boosted retail sales and restored competitiveness among local producers.
Several factors have impact on the Brazilian real. Firstly, attracted foreign investments, as the industry of Brazil cannot develop without them. Secondly, USD trends, as Brazil is a major importer and exporter, and the currency of the United States is used as a major currency for international payments. Brazil has a very heterogeneous population as well as a mixed financial structure. The country lacks infrastructure development. It is characterized by low labour productivity. All these factors have negative impact on the value of the Brazilian currency and on the country’s economic growth.
Optimistic economic long-term forecasts of Brazil give us the reason to assume that the country can confront challenges, and that the major currencies will meet strong competition in the face of the Brazilian real.