Thursday, 22 January 2009

Brazil Dollar Outflows Slow in First Two Weeks of January. Deterioration Seen in the Financial Portion

Banco Central do Brasil reported net foreign exchange outflows of $2.2 billion in the January 1-16, comprised of $2.56 billion outflows on the financial side and a $369 million trade-related inflow. Outflows in December amounted to a total $6.4 billion -- about three times the mid-January numbers. Unless we witness a marked deterioration in trade or financial figures, the outflows for this month will stay below December's. The decomposition of inflows shows an improvement on the trade front, which rose from a $603 million outflow in the first week of Jan. to a $880 million inflow in the second week. The financial-related front showed, however, outflows widening to $2.2 billion in the second week from an inflow of almost $800 million in the first week of the month. On one hand, the trade numbers reflect a decrease in imports; on the other, the rising financial outflows obeyed to the worsening of international financial conditions.

Regarding the currency, at some point, harsher pressure will be exercised on the real as the capital account portion of the balance of payments deteriorates. Of utmost importance will be the evolution of recent measures announced by BCB President Meirelles to mitigate the lack of foreign currency experienced by companies trying to refinance their liabilities abroad. The refusal of international and local lenders to refinance foreign trade lines to Brazilian companies has sparked uncertainty over the payment of more than $60 billion of corporate debt payments scheduled for this year.

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