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Brazil’s real plummets as recession looms
August 5, 2015, 2:54 pm

Brazilians have for years dealt with inflation, but recent data indicates it has increased beyond analyst predictions [Xinhua]

Brazilians have for years dealt with inflation, but recent data indicates it has increased beyond analyst predictions [Xinhua]

Brazil’s real continued to suffer against the dollar on Wednesday, falling even further than its 12-year record low a day earlier.

On Wednesday, fears that Brazil is in danger of losing its investment rating sent the real spiraling to 3.49 (10:40am EDT) against the greenback.

A day earlier, it fell to a 12-year-low of 3.4684.

Year-on-year, the real has devalued by more than 52 per cent.

But the Brazilian real is also suffering from domestic fiscal policies which saw the primary surplus target drop from 1.2 per cent of GDP to just 0.15 per cent.

Brazilian markets fear that this could signal that the country will now receive a lower investment rating.

The real’s plunge, coupled with rampant inflation, the Odebrecht/Petrobras corruption scandal, and slowing global commodities demand has pummeled the Brazilian economy.

Despite the Central Bank’s recent increase of interest rates to 14.25 per cent, inflation has surpassed analyst expectations and reached 8.9 per cent in June.

Government data to be released Friday is expected to show that inflation reached 9.25 per cent for July 2015.

In July 2014, inflation stood at 6.5.

The Central Bank says a 4.5 per cent inflation rate is ideal and signals a healthy economy.

Last week, two of the country’s biggest banks both predicted that Brazil would be in recession by the end of 2015 and 2016 with a contracted GDP as high as 2.2 per cent.

Public confidence in the economy has significantly fallen.

According to UK-based market researcher Ipsos-Mori’s global poll, only 12 per cent of Brazilians believe their economy is in “good health”. Ipsos Mori data indicates that in 2012, 57 per cent of Brazilians believed their economy was doing well.

The BRICS Post with inputs from Agencies

One Response to Brazil’s real plummets as recession looms

  1. JOHN C DURHAM Reply

    August 5, 2015 at 8:10 pm

    A two-tier (or three-tier) interest rate system is called for. (There is no research in existence that indicates raising interest rates affects in any way inflation of prices or devaluation of the currency. HOWEVER, for over two hundred years it has been known that the non-productive use of credit DOES SO JUST THAT (Franklin).

    The worst thing one can do is increase the interest rate, a cost, of the PRODUCTIVE SECTOR. It is, after all, a nation’s productive sector which increases national value and underwrites the value of new currency credit “…every bit as certainly as gold or silver…” (Franklin).

    Those businesses involved in SERVICES, necessary to the productive sector, SHOULD NOT pay more in interest while SERVICES not directly servicing this sector SHOULD pay more interest, because these activities are “overhead” to GDP, i.e., a drag on the economy.

    Highest rate of all should be those activities speculative in nature: the very highest drag on any economy. These people/businesses, should be the only class to pay income tax and the very highest interest rate. Short selling is especially damaging. Selling something NOT PRODUCED BY a short seller should be a criminal offense akin to theft, or be placed under a 100% plus income tax rate, depending upon the provable negative losses to particular persons and harm to General Welfare of The People of EACH PARTICULAR short sale. Banks must be, of course, prohibited from non-banking activities (Glass-Steagall).

    The greatest threat to any Republic being long since proven, beyond any doubt, to be private banking, certainly a “Central Bank” should never be in private hands, ALWAYS PUBLICLY HELD, the net profit of national banking returning to The People through their government. One can see that banking is always a major point of economic justice potential, interest rates of various kinds of loans should be by tight Legislation of interest, no private bank attaining an operational size providing economic abilities to (1) “buy” entire governments Legislatures, (2) control whole ranges of products & companies, as well as even (3) make war (as at present).

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