Weaker Latin American currencies against the US dollar

_Next year there will a greater devaluation of Latin American currencies which will receive the full impact of lower commodities' price and the US recovery_, said the bank's chief economist Ilan Goldfjan in Sao Paulo.

The largest Brazilian bank also anticipates that the US recovery will strengthen the dollar, while the European Union will grow at a slower pace and China will continue its expected economic deceleration.

Goldfjan said that all Latin American countries suffered a slowing down in 2014 because of lower prices for commodities, but on the good side he anticipates a 'moderate recovery' in the region's rate of activity.

Regarding Argentina the economist said that in 2016, following the presidential election, a strong balancing of government spending can be expected.

As to Brazil, Goldfjan as well as the bank's CEO Candido Bracher praised the fiscal package promised by the country's next Finance minister Joaquim Levy who anticipated he would implement government savings to ensure a budget primary surplus equivalent to 1.2% of GDP this coming year.

_The economic team must have political support for its plan_, said Bracher who underlined that 'greater austerity' by the second administration of president Rousseff as of next January first _is the only option_ to recover confidence from investors in Brazil.

Goldfjan said that the fiscal tightening promised by Levy will be _expansionist_ since the goal is recovering 'confidence', because in reality there is no problem with the economy's domestic demand.

_There will be an adjustment, but there is limited space to move, just like a short blanket_, he added.

The bank's leading economist forecasted that the US dollar would be trading at 2.80 Reais by the end of next year while inflation will be in the goal range which is a maximum of 6.5%.

_Devaluation will reflect in inflation, making services cheaper, but dearer other sectors, and this will force a reconversion in the way inflation is calculated because of the rising cost of the dollar_.

However Bracher also admitted that the market is 'edgy' and contained because of the major corruption scandal in Petrobras which involves not only top officials from the oil company but also Brazil's main contracting corporations.

But the medium and long term prospects of Petrobras _are good_ since it includes plans to extract oil from offshore reservoirs at _lesser operating costs_.

Merco Press

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