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Weekly Report - 6 January 2011 (WR-11-01)

BRAZIL: Currency war begins to exact toll

It should have been cause for celebration. Brazil broke a new record for exports in 2010: US$201.9bn, up 31%. Instead, policymakers were left fretting at the surge in imports, which outstripped exports, increasing by 42% to US$181.6bn. This was another, less welcome, record, which ensured that Brazil's balance of trade surplus fell 20% in 2010 to US$20.3bn, the smallest in eight years. The decline of the trade surplus will provide a big challenge for the incoming administration of President Dilma Rousseff. Its main cause is the rise in the value of the real as a result of monetary policies pursued elsewhere, or, in other words, the “currency war" to use a phrase which has become de rigueur in policy circles and in the media in recent months.

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