BRASILIA, April 12 (Reuters) – Brazil’s central bank is making progress on plans to digitize its real currency, and should have news soon on the issue, bank president Roberto Campos Neto said on Monday.
In an online debate organized by the Bank of Spain, Campos Neto said central banks around the world should deepen their discussions about digital currencies, which have common characteristics in several countries.
“We are making great progress in the digital currency process and we will have news soon,” said Campos Neto, without elaborating.
Among the issues that remain to be determined are whether the digital world will attract interest, and what types of technology will be adopted, said Campos Neto.
Although the use of domestic electronic payments has exploded and mobile and communication technology have improved in recent times, the real currency remains essentially the physical currency.
The central bank set up a study group in August last year to weigh the potential benefits and impacts of publishing real in digital format.
This study assesses risks involving cybersecurity, data protection and regulatory compliance issues, and evaluates how digital currencies will affect financial inclusion and stability, as well as the implementation of monetary and economic policy. (Reporting by Jamie McGeever and Isabel Versiani. Editing by Mark Potter)
BRASILIA, April 12 (Reuters) – The prospect of Brazil’s 2021 interest rate rising to 5.25%, the central bank’s survey of economists published on Monday showed, after repeated comments by policymakers that aggressive tightening now means borrowing costs won’t rise as much as in the end. .
The median estimate for Selic’s benchmark interest rate of more than 100 economists in the central bank’s weekly ‘FOCUS’ survey increased from 5.00% the previous week, and 4.50% four weeks ago.
Central bank chief Roberto Campos Neto said more than once last week that an advance rate hike meant there was no need to raise that much, and that the bank’s ‘partial normalization’ policy meant Selic would not move up to his neutral level until next year.
Figures showing inflation rose above 6% in March “solidified” another 75 basis point rate hike to 3.50% in May, a repeat of the first rate hike in last month’s tightening cycle, he said.
The ‘FOCUS’ survey on Monday also showed economists’ average year-end inflation forecast edged up to 4.9% from 4.8%, even further above the central bank’s goal of 3.75%.
Economists’ Selic 2022 forecast was unchanged at 6.00%, and their 2023 outlook was unchanged at 6.50%, the survey showed.
With the second wave of the deadly COVID-19 pandemic hitting the country, the outlook for Brazil’s economic growth in 2021 has dimmed slightly for the sixth week in a row to 3.1% from 3.2%. The year-end forecast for the exchange rate also slipped for a third week to 5.37 reais per dollar from 5.35, the survey showed.
$ 1 = 5.68 reais Reported by Jamie McGeever; Edited by Paul Simao
* Eurozone suburban government bond yields tmsnrt.rs/2ii2Bqr (Updating prices, adding backgrounds)
LONDON, April 7 (Reuters) – Eurozone bond yields were flat on Wednesday, with southern European debt steady after a sell-off in the previous session as markets braced for fresh supplies from Italy and Portugal.
Italy began the process of selling its new 50-year and 7-year bonds through a syndicate of banks on Wednesday, after marking new issues the previous day.
Portugal raised, through a bank syndicate, 4 billion euros of 10-year bonds on the back of a demand of 30 billion euros, according to a memo of the chief manager.
The tone on eurozone debt markets was largely weak, with most 10-year bond yields down 1-2 basis points (bps) on the day following falling overnight US Treasury yields.
“Overall, the higher pull from US interest rates is still alive and well and the rebound in eurozone bond markets is largely technical and temporary,” said ING senior rates strategist Antoine Bouvet.
The yield on the German 10-year Bund was flat at -0.32%, down from recent highs around -0.26%.
The IHS Markit Eurozone Purchasing Managers’ Index (PMI) rose to 49.6 in March from February 45.7, higher than the flash forecast of 48.8 and just below the 50 mark that separates growth from contraction.
The eurozone economy is on track for a strong recovery in the second half of this year that could allow the European Central Bank to start phasing out its emergency bond purchases in the third quarter, said Dutch central bank head Klaas Knot.
The ECB bought net assets of 6.178 billion euros ($ 5.20 billion) last week as part of a quantitative easing program, below the 23.995 billion euros it bought a week earlier.
The yield on Italy’s 10-year bond was unchanged at 0.70%, after rising sharply on Tuesday as investors braced for new supplies. The difference in the yield on the German Bund is just over 100 bps.
Analysts said bond spreads are back in focus, especially after last month’s decision by Germany’s constitutional court to stop ratification of the EU Recovery Fund prompted investors to reassess some of the risks to peripheral bonds.
“Tesoro’s (Italian Treasury’s) announcement of a new 50-year BTP syndication caught the market off guard, with 10-year and 30-year spreads versus the Bund widened by 7 bps to its highest level in nearly a month,” said Michael Leister, chief interest rate strategist. at Commerzbank, referring to Tuesday’s market moves.
“While thinner Easter liquidity may also play a role, this move adds weight to our short tactics in Italy versus semi-core (bonds) and Spain as the risk of indigestion is exacerbated by doubts about the NGEU (Next Generation EU), the ECB’s settles and makes a difference. the less generous. “(Reporting by Dhara Ranasinghe; Additional reporting by Yoruk Bahceli; Editing by Pravin Char)
LONDON (Reuters) – Britain will focus first on regulating stablecoins rather than the broader cryptocurrency market, the finance minister said on Tuesday, citing threats to competition if there are large private endeavors to dominate the developing field.
Facebook Inc’s move in 2019 to introduce its own Diem stablecoin, then known as Libra, raised concerns among governments and central banks that a major payment competitor could emerge overnight.
“We need to manage competitive risk,” said John Glen at the City & Financial conference.
“There is potential for some companies to quickly gain dominance and get rid of other players, because of their ability to scale and connect to existing online services,” said Glen.
“We believe the case for intervention in the broader cryptocurrency market is less urgent.”
Stablecoins like the planned Diem, which are now run by an association that includes Facebook and are currently seeking approval in Switzerland, are designed to avoid the volatility that is typical of cryptocurrencies like bitcoin.
Stablecoins have become the largest cryptocurrency component by trading volume, said Glen. While no global systemic players have yet emerged, he added, this could change quickly.
The largest stablecoin by market cap, Tether, is a fraction of the size of bitcoin and is little used for trading. Most of the stablecoins are used for trading and investment.
Glen said the UK will not hold back on innovation or become protectionist when it comes to distributed ledger technology, which supports cryptocurrencies like bitcoin.
“We have a once-in-a-generation opportunity here to make big strides in the efficiency of financial services, and ultimately benefit consumers and the economy as a whole,” he said.
Separately, the UK financial watchdog said it would not be suitable to impose existing e-money – “e-money” – rules on stablecoins, as some are backed by multiple currencies or other assets.
“The e-money regime is not a good match for crypto,” said Alex Roy, head of consumer distribution policy at the Financial Conduct Authority, at the same conference.
UK e-money regulations allow cashless payments with money deposited on cards or phones, or online.
Reporting by Huw Jones and Tom Wilson; Edited by Shri Navaratnam
BRASILIA (Reuters) – The Brazilian real, one of the world’s worst performing currencies this year, will benefit from a stronger-than-expected central bank rate hike on Wednesday and the promise of a second dose in May. .
The central bank’s aggressive start to its tightening cycle, following the recent boom in foreign exchange market intervention, will put a floor below the real in the near term, analysts said.
Signals from the US Federal Open Market Committee on Wednesday that no rush to raise US interest rates should also keep the dollar under control, providing another layer of support for emerging market currencies.
Strategists at the global FX powerhouse of Citi and Barclays are among those who recommend buying real, via the derivatives market, in the belief that it will strengthen against the dollar over the coming weeks, and maybe even months.
However, the medium-term outlook may be less certain.
Even though Brazil’s central bank raised its official borrowing costs by 75 basis points to 2.75% and said it is likely to do so again in May, real interest rates will still be negative for some time, and therefore relatively unattractive to investors.
Inflation was running at 5.2% and headed for more than 7% in the middle of the year before easing. The central bank’s own forecast on Wednesday has ended the year at 5.0%, well above its official target of 3.75%.
Graph: Brazil real exchange rate –
Moreover, the consensus among economists holds that while the central bank’s rate-setting committee, known as Copom, has started its cycle of aggressive tightening, the end point for interest rates may not change much, if at all.
This is happening against the backdrop of a worrisome public health crisis. Brazil is now the global epicenter of the COVID-19 pandemic, and a deadly second wave and slow vaccination program poses a danger to the economy and public finances.
“Real will likely benefit from the results of March’s FOMC and Copom meetings, but are not out of the woods yet. In the near future, the evolution of the pandemic and vaccine launches remains the real key, ”UBS strategists wrote in a note on Thursday.
Morgan Stanley strategists withdrew their recent calls to sell the real and now expect “some short-term stabilization in the currency” following Brazilian and US policy moves on Wednesday, but warned that “medium-term risks remain intact.”
ASK FASTER, NOT FURTHER
On the domestic interest rate front, one of the key issues for real long-term performance is the extent to which investors’ expectations of the Copom tightening cycle shift.
So far, the signs: not many.
Prior to Wednesday’s decision and statement, the consensus view of more than 100 economists in the central bank’s weekly “FOCUS” survey was that Selic will end this year at 4.50% and next year at 5.50%.
While some economists have since put forward their rate hike estimates, few have actually raised them. As such, the central bank is now expected to raise interest rates sooner, but in the end no further than originally estimated.
Currency moves on Thursday provide an early indication of how much tightening is already in real prices. It was sharply higher at the open, almost 2% at one point, but by the middle of the day it was up nearly 1% around 5.54 reais.
While many countries are vaccinating large portions of their population against COVID-19 and opening up their economies, Brazil has fully vaccinated less than 3% of its population and has recorded record numbers of new cases and deaths.
The national public health system is on the brink of collapse, several states will return to lockdown and the government on Wednesday said the economy was likely to shrink 0.35% in the first quarter. Many economists are projecting deeper declines and say risks in the second quarter have increased.
The primary measure of investors’ level of fear of Brazil’s public finances and of their ability – or willingness – to reduce their record debt is the interest rate curve. The steeper curve reflects the increased risk premium built into longer term debt maturities.
Some of Brazil’s exchange rate curves have climbed to record levels in recent weeks. The central bank’s bold action to counter rising inflation and rising fiscal risks will help flatten it, analysts say.
But as of Thursday morning, the gap between January 2022 and January 2027 futures prices is still nearing last week’s record high of around 440 basis points and is actually widening slightly.
Graph: Difference in Brazilian exchange rates –
Reporting by Jamie McGeever; Edited by Dan Grebler