I found quite interesting that Brazil and China are planning to use their own currencies in trade transactions between the two countries rather than the US dollar - something that, if turned into reality, will mean a lot for Brazil which has China as its main trading partner since the beginning of 2009. I am curious to know what the US would say about that, specially if China starts doing the same deal with other countries. On the other hand, China also loses with the depreciation of the dollar, so it probably won't do it extensively - let's see!
And in another aggressive move, the Brazilian CB unexpectedly cut its interest by a full point: for the first time in our history we have interest rates of 1 digit only!
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Interesting deal. I just do not see how the deal is good for Brazil as long as the renminbi is not fully convertible while the real is. Either China needs to go th whole way or Brazil is on the loosing end in the deal since they can use their export earning only in limited transactions.
It is just amazing to see how the Chinese are creative in pulling the best deals for themselves. There is a lot to learn from them. Had they just not made the mistake of hoarding so much dollars....
And congratulation for the single digit. Even though I think in the current context it is not really a reason to celebrate.
yes, that's true, and the reaction in Brazil was quite skeptical because of the reason you mention;many people dont believe it will become true (the same deal was done btw brazil and argentina and doesn't really work). in any case, the CB said it's a "long-term" conversation with China.
as for the interest rate, why do you think it's not a good thing given the current context? it's about time Brazilian businesses and consumers face a bit more decent interest rate..unemployment is high..and on the other hand real is quite appreciated and inflation under control..well, but you're the macro guy! :)
i did not mean to say it is the wrong policy to lower interest rates, on the contrary.
But the fact that the interest rate is lowered implies that in fact demand is very low (and inflation therefore low) and unemployment has become a major concern , so bad news....
whether the lower interest rate implies really a much reduced cost for investment is also a big question since real rates count, and as you said inflation is low....
I see your point - I guess it's just a different way to look at it: ok, it means CB is worried about employment, but also that this time they were able to do something about it because inflation is not a hysteria anymore - in all other occasions this wasn't the case...
inflation is low (historically low) but not THAT low (5.5 or so) :)
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