YOUR PORTFOLIO Real / lira
Brazilian real
As a resource-rich nation , Brazil benefited from higher commodity prices last year , which outweighed concerns about increased fiscal spending . However , there were also other factors at play . Kamil Dimmich , manager of the Pacific North of South EM All Cap Equity fund , says it is important to remember that exchange rates are driven by differentials in inflation over the long term – currencies where prices rise quickly weaken against those that are more stable . “ This must be the case , as otherwise citizens of a country with high inflation would become richer relative to the rest of the world without any increase in output ( as their nominal wages and purchasing power rise faster than those abroad with lower inflation ),” he notes . Enter the Brazilian central bank , which has a long history of successfully battling inflation and hyperinflation . It began its hiking cycle one year before the Federal Reserve and Bank of England , raising rates above the level of domestic inflation . They ended 2022 at 13.75 %, whereas the figures were 4.5 % for the US and 3 % for the UK . “ These interest rate differentials made the ‘ carry trade ’ too lucrative for market participants to ignore , especially considering that inflation in the UK and US was higher than that in Brazil last year ,” says Michael Simpson , manager of the Barings Latin America fund . This led the Brazilian real to rise 17.6 % against
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