quinta-feira, 17 de janeiro de 2013


High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email to buy additional rights. If there’s one Portuguese word you need to learn before coming to Brazil it’s jeitinho. Literally “little way”, it refers to the nationwide habit of circumventing rules or conventions through highly creative, cunning and sometimes downright illegal tactics. Can’t get tickets to a show or pass your driving test? Don’t worry; you just need to find a jeitinho. It also works for managing the economy, it seems. With growth still sluggish and prices rising faster than expected, Brazil’s central bank and finance ministry are also becoming pros at the jeitinho – albeit the legal kind. Although the central bank is expected to leave Brazil’s benchmark interest rate unchanged at 7.25 per cent on Wednesday, this Bloomberg article suggests it is opting for a “stealth rate cut” instead: The rate that banks charge each other for overnight loans, known as DI, was 6.93 percent on Jan. 14, marking the 23rd straight day it has been more than a quarter-percentage point below the central bank’s 7.25 percent target. The 0.32 differential is more than double the average over the past decade and compares with gaps of less than 0.1 percentage point in the U.S. and neighbors Colombia and Chile. The growing rate gap in Brazil, which was sparked by an increase in cash levels that central bank President Alexandre Tombini has left unchecked, is rendering useless traders’ models designed to calculate the probability of policy moves in coming days and months, according to Votorantim Ctvm Ltda. By allowing the overnight rate to drop, Tombini is adding stimulus to a sputtering economy without having to announce the 11th reduction in the target since 2011. With rate increases out of the question, Finance Minister Guido Mantega is also helping out with a few jeitinhos of his own to control inflation. São Paulo’s mayor, Fernando Haddad, told Brazil’s Rádio Estadão on Tuesday that Mantega had asked him to put off increases in the city’s bus fares for a few months to ease inflation. Mantega is already somewhat of an expert at the jeitinho. He has spent the past couple of years dabbling with the country’s taxes to micro-manage growth and the currency. Brazil’s fiscal targets have also required some creativity, as Tony Volpon at Nomura explains: In the first few days of the year, the government announced a series of accounting transactions to meet its fiscal primary surplus target of 3.1% of GDP. These included discounting up to BRL40.5 billion in investments made under the PAC investment program, “anticipating” BRL20.6 billion in dividend payments from state-owned banks (which in turn are “capitalized” by receiving government debt directly from the Treasury), and by withdrawing BRL12.4 billion from the Sovereign Wealth Fund (which was invested 100% in local government debt, unlike any other sovereign wealth funds, which hold foreign investments). While none of these measures are breaking any rules (nor is Brazil the only country to use them), the market would now like to see a little more straight-taking when it comes to inflation at least, says Alberto Ramos at Goldman Sachs: We are of the view that at a certain point the central bank needs to own the inflation problem and acknowledge that just remaining on automatic pilot may not be enough to drive inflation to the 4.5% target by year-end 2013. That was the narrative of 2012 and inflation did not converge to the target despite much weaker real growth that originally expected. In fact, the IPCA [consumer price index] printed above 5% for the third consecutive year, averaging a high 6.1% during 2010-12. This suggests that in the eyes of the market the authorities have been viewing the wide ±2.0% band around the generous 4.5% target as a “band of tolerance” rather than a “band of variation” to accommodate price shocks.

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