en-us http://www.economonitor.com/blog/2012/05/the-strong-real/ Comments from The Strong Real http://www.economonitor.com/blog/2012/05/the-strong-real/#IDComment359911385I am from Brazil and this analysis is the reality! Brazil needs structural reforms not anaesthesia and populism. Congrats! Mon, 14 May 2012 00:04:54 +0000http://www.economonitor.com/blog/2012/05/the-strong-real/#IDComment359911385 http://www.economonitor.com/blog/2012/05/the-strong-real/#IDComment356746031Brazil has a non-taxed, lower interest rate, saving, called Poupança. Its yield is 0.5% per month (plus a small TR, which tries to keep the gain in purchasing power 0.5%) In the year the yield is 6.53%. The use of funds deposited in Poupanca, is limited (mainly for mortgages). People with larger resources to invest can get greater after taxes returns even by just investing in CD like bank notes, etc. because a year ago the basic interest rate (called Selic) was 12.5% but now it has fallen to only 9%. If it falls to 8.5% the rigidly defined in law Poupança return would become higher. 100s of millions of Real would move from their current application into Poupancs. Then there would be no funds for new loans to business or to buy a new car, etc. - Economic disaster almost over night. Thus, on 4 May 2012 the Poupança interest rate changed to be 70% of Selic rate when the Selic is 8.5% or lower. This allows the government to lower Selic more without triggering the economic disaster of extremely tight money (no funds to lend). Thus I bet the selic will within the month resume dropping. Brazil needs high valuable Real made by the US´s "currency war" has destroyed Brazilian labor intensive export industries like making shoes. The very low US interest made carry trade dollar flood into Brazil. Excessive supply of dollars with little demand for them made the dollar cheap and was "exported inflation" as well as job destroying. Brazil has decided to fight back in the currency war´s race to lower the value of your currency to help your exporters. By lowering Selic rate the Real will be less valuable again (less carry trade, etc.). The stream of dollars leaving the US for higher returns elsewhere were the "bullets of the currency war." Tue, 8 May 2012 22:15:52 +0000http://www.economonitor.com/blog/2012/05/the-strong-real/#IDComment356746031