The ability to borrow overseas is important to Brazilian corporate-growth plans since domestic interest rates remain extremely stiff. Some believe the central bank is now simply trying to push the real back down after having allowed it to appreciate, in part, for political reasons. A strong real was also preferable with oil prices running higher, since Brazil is a big oil importer. In the near term, there are a number of factors to suggest the central bank may have to work to keep the real from resuming its appreciation. A number of Brazilian corporate-equity issues in the hot Internet sector are expected in coming months, sure to attract even more dollars.
Inflation is well within the central bank's targets.
Most economists expect the real will finish the year at between 1.81 and 1.90 per dollar, according to a central-bank survey. At its monthly monetary policy meeting last week, the central bank had left interest rates unchanged, citing lingering uncertainties on the inflation front. It did adopt a bias toward lower rates, which allows bank President Arminio Fraga to cut rates unilaterally, without a meeting of Brazil's monetary policy committee. The rate cut was the first outside the scope of a regular policy committee meeting since June. Brazil counts on oil imports for most of its fuel needs and manages its interest rates based on inflation targets.