The Big Mac index suggests that currencies are particularly overvalued in Norway, Switzerland and Brazil (see chart). The continuing strength of the Brazilian Real is a big source of irritation to Brazil’s finance minister, Guido Mantega, who first trumpeted the phrase “currency wars” in 2010. Brazil battled back by introducing capital controls in the form of taxes on foreign purchases of Brazilian securities, but the currency remains overvalued.

According to FT, trying to understand what Guido Mantega is up to can be exhausting, especially when it comes to his favourite topic: currency wars.

It seems there are three possible explanations behind the authorities’ mixed messages:

1. They want a gradual appreciation of the real to curb inflation and Mantega’s warning was intended to moderate any sharp moves on the back of the central bank’s intervention

2. They have decided the real is at the right level and are sending out contradictory signals to stabilise the currency

3. They have no idea what they’re doing.

Most people we interviewed chose option #3.

Source: The Economist, FT

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7 Responses to Big Mac Index: Brazilian Real is overvalued by 30%

  1. PG says:

    #3 for sure !

  2. Eduardo says:

    Are you analysing using a BIG MAC Index? You can’t be serious, man.

  3. me again says:

    Reais is not strong to Euro.
    Is pretty cheap to be honest/

  4. frank stein says:

    I would be extremely surprised if they had any idea of what is going on.

  5. Jacko says:

    I think Brazil’s currency is this level because they are forced to keep it high.
    It wouldn’t surprise me if they are being blackmailed to keep it at this ridiculously high level.
    Mint a 1 Trillion $Real coin and develop/buy nuclear weapons with it to stop the crooks blackmailing you. Buy and stockpile oil with the change.
    Just my personal opinion.

  6. jayme says:

    i only got one position(short) at the eur/usd if i could affoard more i definetly would.
    euro to me is a illusion, is destined to fail, and drop like a rock

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