The depreciation of the BRL versus the U.S. dollar since the beginning of 2014 to BRL3.12 from BRL2.36 will not enhance exporters’ global competitiveness to the level they enjoyed at the beginning of the millennium, according to Fitch Ratings.
“Brazilian corporates cost structures have been devastated by inflation during the past decade,” said Joe Bormann, Managing Director at Fitch. ‘The exchange rate would have to depreciate to around BRL3.75 to bring them back to competitive positions they enjoyed in 2004.”
According to the article, Brazil has lost its competitive position as an exporter of steel, sugar/ethanol and automotive and a number of defaults have occurred in the past few years.
“Conditions aren’t expected to improve in the near term. Weak economic conditions have stifled demand for automobiles. Increases in the price of ethanol are only possible if accompanied by higher gasoline prices at the pump, which is unlikely following the recent plunge in international oil prices to multiyear lows.”