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Brazil’s official currency is the Brazilian Real (BRL, plural: reais). Its commonly used symbol is R$. The Central Bank of Brazil is responsible for monetary policy.
Foreign currency accounts are generally not available from Brazilian banks, even though strictly speaking they are not legally prohibited for expats.
Exchange rate regime
The Brazilian Real follows a freely floating exchange rate regime. Foreign exchange is tightly regulated though, as all FX transactions must be registered with the Brazilian authorities. Only authorised dealers are permitted to operate on the FX market.
Exchange rate trends – long term picture
Brazil has always been a high inflation, high interest rate country. Real interest rates (i.e. adjusted for inflation) tend to be positive as well, and they are currently a bit better than those seen in Western countries.
Brazil’s inflation differentials with the world’s developed economies mean that the Real permanently depreciates over the long term. That depreciation is just nominal though. In practice, it may even hide a real appreciation.
Brazil has not a long track record of monetary stability. Its last experience of hyperinflation (with inflation soaring above 5000%) dates back to no earlier than the mid-1990s. Since then, monetary policy has stabilised quite well, but inflation is still quite high, albeit generally below the 10% mark.
Hyperinflation has convinced Brazilian policymakers to adopt an inflation-targeting approach, just like many other countries in the world. Currently, the inflation target is 4.5%, plus or minus 2%. In practice, inflation is within the target range but it tends to be 5.5%-6.5%.
As a general rule, emerging countries aim at anchoring inflation to levels seen in developed economies (around 2%). Such a process is lengthy though, so low inflation rates should not be expected anytime soon in Brazil.
Emerging currencies haven’t been quite popular since the Euro-zone crisis. Thus, international investors have been shunning the Brazilian so far, regardless of the investment opportunities Brazil may have. Such market conditions are generally justified by a lower enthusiasm for emerging markets and the upcoming end of the US monetary stimulus.
As a result, this has caused the Brazilian Real to depreciate quite substantially – much more than the nominal depreciation resulting from the sole inflation differentials. As of May 2014, the USD/BRL stands at 2.2. This is up from 1.6 in August 2011, which was the Real’s all-time high in real terms.
In order to avoid a bloodbath for its currency, the Central Bank of Brazil has regularly hiked its interest rates, thereby making the Brazilian Real more attractive for foreign investors.
Sections in FINANCIAL CONSIDERATIONS IN BRAZIL:
» Money Transfers for Expats in Brazil
» Foreign Exchange for Expats in Brazil
» Banking for Expats in Brazil
» Pensions for Expats in Brazil
» Investment for Expats in Brazil
» Wealth Management for Expats in Brazil
» Property Investment for Expats in Brazil
» Insurance for Expats in Brazil
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