With Brazil’s presidential election just a little less than two months away, voters are putting the economy at the top of their list, as they decide which of the three candidates will be best suited to reinvigorate the economy, reduce inflation and cut the country’s large current account deficit.
It won’t be an easy task, especially with Brazil’s inflation last month coming in at 6.49 percent, well above the 4.5 percent target rate.
One would expect after hosting the World Cup during June and July, which included more than 1 million estimated visitors, Brazil would have experience a sharp jump in economic activity last month. However, Brazil’s economy still appears sluggish, something Guido Mantega, Brazil’s finance minister, is blaming on the World Cup, which he believes put businesses on hold for a month.
On Wednesday, Brazil’s central bank eased rules on reserve requirements, in order to free up $4.5 billion for lending, a move it hopes will inject this money into the economy. This is the second stimulus attempt by the central bank in a little more than three weeks, the first being a $20.25 billion injection through the easing of compulsory deposit rules and changing risk calculations on some loans.
Even with ample funds now in the system, analysts are skeptical the economy will turn around prior to the presidential election. With uncertainty surrounding the economic policies of Brazil’s next president, analysts indicate banks appear unwilling to lend and businesses are reluctant to take on new debt.
So far, Brazil’s stock market appears to be cheering on the central bank’s efforts while pushing Brazil to the top of this week’s country list, with the MSCI Brazil 25/50 index gaining 6.06 percent over the past five trading days.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate. This article was written byLaif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH).