Political Risk Latin America Blog @PolRiskLatam

The rising BRL: Brazil’s sovereign debt, sorry, wealth fund to the rescue

Posted in News and Articles, Political Risk by politicalrisklatam on September 21, 2010

by Jonathan Wheatley for Financial Times, September 21, 2010.

No sooner had the FT gone to press on Monday evening with a report that Brazil was likely to use its sovereign wealth fund to fight the appreciation of its currency, the real, than the finance ministry announced it was preparing to do just that.

Here, with no further comment, is what Tony Volpon at Nomura had to say in a note to clients on Tuesday:

“Late yesterday, in another round of the by now tiring attempt to talk down BRL, the governing council of Brazil’s Sovereign Wealth Fund (“SWF”) approved its internal regulation and allows the start of its investment activities, specifically the buying of USD in the market. In the post meeting communiqué, the council makes the questionable statements that “there are no limits for the fund to buy foreign exchange”, and that “the investments will not affect the budget, since these are funds of the National treasury, and so do not constitute public spending”, an affirmation that carefully forgets to mention that this fund will have to overcome the huge negative carry of buying USD against the issuance of BRL debt paying rates at or above Selic”.

(continue reading… )

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