Happy Monday!.. I thought I would start Monday with a puzzling question. Any thoughts about Brazil? Brazil raised key interest rate a half-point to 8.5 pct. Do you think it’s good or bad for Brazil?

I think it will slow down Brazilian economy, because raising interest rates will slow down exports. The higher costs of living for some or, more precisely, higher cost survival for most is unavoidable. Especially, small businesses will feel the impact and suffer tremendously.

Politically, unrest and protests in the country will explode even further and dissatisfaction with Brazilian government will escalate.

However, at the same time, raising interest rates will make Brazilian Real stronger. With higher prices for oil Petrobras might compensate the foreign exchange by potentially bringing Real higher.

And speaking of the foreign exchange, even with restrictions of Brazilian Real there will be a lot of new carry trades. It’s possible that people will sell Japanese Yen, Euro and buy Brazilian Real to have 8% carry, which could potentially create a bubble that will explode. As of course, all bubbles explode.

At the end and as always, somebody will lose a lot of money and unfortunately the ordinary hard-working citizens always pay or lose the most.

Agree? Disagree? What do you think?


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