The Brazilian real posted the best performance among 16 major currencies this week after the Fed shocked the markets by maintaining the $85 billion pace of monthly bond buying. Inflation slowed to less than 6 percent for the first time this year in the 12 months through mid-September.

According to Valor’s Claudia Safatle, the Fed took away from the Brazilian economy some inflationary pressure, caused not only by the dollar devaluation that has occurred, but also by the expectation of further depreciation of the American currency by the year’s end.

Here is what she said:

“This is an important effect to the extent that the private sector expected a sharper depreciation that would produce more inflation or a more aggressive interest rate hike or both. The Fed’s decision, therefore, has substantially reduced the risk faced by the Central Bank (BC) to raise the Selic rate back to double digits.

With less pressure on inflation, a crack opens in the Extended Consumer Price Index’s (IPCA) “budget” this year, so the government could accommodate a price increase in oil products (gasoline and diesel) without breaking the ceiling of the inflation target (6.5%).

In this respect, the Fed’s decision helps in two ways: with a more accommodating exchange rate of around R$2.20, the “hole” in Petrobras’s finances generated by the difference between external and internal prices decreases; with a smaller “hole”, the size of a price adjustment, for the same result, becomes smaller. In the government, officials say President Dilma Rousseff may authorize an increase of about 6% to 8% for the next month.

Thus, it does not seem unreasonable to say that Ben Bernanke helped Brazil a lot, besides, of course, favoring emerging countries that were paying a high price for the migration of investors to US Treasuries.”

Viva o Bernanke!

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