Climax for Brazil

Brazil seems to enjoying its current scenario of increasing imports. The Brazilian “real” is getting stronger by the day and US currency is cheaper by 17% for Brazil, as compared to last year.

This certainly works in favor of imports. But Brazil is also witnessing a US$ 17.4 Billion current-account deficit in the first half of the current year. Though the deficit looks sizable, a major portion of this is fully financed by FDI and Brazil has a US$ 20 Billion foreign exchange reserve which it gained from capital inflows.

The immediate concern just seems to be that the Brazilian “real” is a little overvalued. I think that Brazilian economy will continue to attract foreign capital, but the current-account deficit will also widen.