The mega-auction for the exploration of pre-Sal basins, which involves four areas of the Santos basin and through which the government planned to raise about 106.5 billion dollars, was almost a failure. Only two of the four basins received an offer (Búzios and Itapu) and were won at the minimum price. The Sépia and Atapu basins have not even received an offer. The Búzios basin went to the consortium formed by Petrobras (90%) and the Chinese CNOOC and CNODC (10%), that of Itapu went to Petrobras (100%). In all, the value collected was R$ 69.9 billion (about 16 billion dollars), far from the government’s estimates. The large multinationals of the sector remained at the window, which shows that the operation – both for the price requested and for its modalities – was not considered competitive. The pre-sal remains therefore still an almost exclusively Brazilian business.

The Brazilian currency, the real, is facing a period of pressure on the financial markets. One reason is the failure of the pre-sal auction, given that the expected substantial flow of foreign capital has not materialized. Furthermore, the decrease in the discount rate (today at 5%) makes the yields offered by Brazilian bonds less attractive and drives away institutional investors, such as large pension funds. Third factor, the signals given by the government (read the economy minister Paulo Guedes) according to which the real devalued is a good for the economy, at least until it does not produce inflation. Contrary to what was promised during the election campaign by Bolsonaro, the dólar could remain above R$ 4 until the same economic growth provokes a positive flow of foreign investments.

The good news is that the government, with the consent of the Banco Central, has decided to begin to intervene on the interest rates requested by the banks. The first step, hopefully followed by others, was to set a ceiling of 8% per month for interest rates on bank overdrafts. This is still a very high value for international standards, but well below the 12.4% practiced by banks on average in October 2019.

The increase in the number of employees seems to be consolidating. In the first ten months of 2019, 841,000 new jobs were created, the best result since 2014. We are still far from pre-crisis levels, but it is one of the many signs that the Brazilian economy is catching up and that 2020 can represent a turning point.

News of the last hour, the President of the United States, Donald Trump, announced the restoration of tariffs on the import of steel and aluminum produced in Brazil, as a retaliation for the devaluation of the real, considered the result of a deliberate policy of the Brazilian government. If confirmed, this is a personal setback for Bolsonaro, who has always declared to have privileged relations with Trump and has made numerous concessions (without compensation) in favor of the USA.

We see below the trend of the main economic indicators:

GDP (Value added at market prices)

  2014 2015 2016 2017 2018 2019 2020
GDP – real growth (%) 0,5% -3,5% -3,3% 1,0% 1,1% 0,99% 2,2%

GDP growth forecasts improve for both 2019 and 2020. Signs of a substantial recovery are increasing, which should consolidate over the next year.

Inflation and real/dollar exchange 

  2014 2015 2016 2017 2018 2019 2020  
IPCA (IBGE – %) 6,40% 10,7% 6,29% 2,95% 3,69% 3,52% 3,60%  

Forecasts for inflation also rose slightly, but are still under control. The strong devaluation of the real cannot fail to have results on the prices of imported products, with consequences in the formation of the price even of domestic products. In the shops and in the fuel distributors, the price increase is clearly perceived and soon there should also be a repercussion on the official indicators that measure inflation.



2014 2015 2016 2017 2018 2019 2020  
Exchange rate R$/US$ (end of the period) 2,66 3,90 3,25 3,25 3,75 4,10 4,01  

The year-end forecast for dollar prices is up, estimated at R$ 4.10. Today the dollar is quoted at R$ 4.21 (a month ago it was at 4.01). In recent weeks, the market is betting against the real, so much so that Banco Central has had to intervene by selling dollars in large quantities to contain the currency devaluation. I remember that in Brazil the exchange rate is free and the Central Bank does not have as its goal the maintenance of an exchange level considered optimal; on the other hand, to prevent excessive stress and inflationary consequences, the Banco Central can intervene by buying / selling money using the (substantial) reserves in hard currency.

The euro is now listed as R$ 4.66 (a month ago it was at R $ 4.47).


Interest rate

  2014 2015 2016 2017 2018 2019 2020  
Nominal Interest rate (end of the períod) 11,80% 14,87% 13,75% 7,00% 6,50% 4,50% 4,50%  
Real interest (deflactor: IPCA) 4,20% 2,60% 6,91% 4,05% 2,81% 0.98%  



The end-of-year forecast of the discount rate (SELIC) is stable at 4.50%. It means that the market expects a further decrease from Banco Central at its last meeting in 2019, which will take place next week. It remains to be seen whether the tensions on the foreign exchange market and the possible inflationary consequences will lead Banco Central to adopt a more cautious policy, deciding to keep SELIC at its current level.

The Brazilian stock market (Bovespa)

The stock market remains close to its all-time high, despite some fluctuations in recent weeks. It must be considered that, with the depreciated real, Brazilian stock prices are even more attractive for foreign investors. Considering this factor and the improvement of economic indicators, the stock market could experience a very positive end of the year.