Apresentação do Diretor de Assuntos Internacionais e Gestão de Riscos Corporativos do Banco Central do Brasil, Tiago Couto Berriel, em evento organizado pelo Bank of Finland, na cidade de Helsinque, Finlândia, em 22 de novembro de 2016, por ocasião da celebração do vigésimo-quinto

aniversário daquela instituição (BOFIT 25th Anniversary Conference).

Helsinque, 22 de novembro de 2016.

Tiago BerrielDeputy Governor for International Affairs

and Corporate Risk Management

BOFIT Anniversary ConferenceHelsinki, Finland

November, 22nd 2016

2

Outline

1. Ample Global liquidity (UMP) and its effects on EMEs and Brazil

2. Effects of capital flows surge in Brazil (2009-2012)

3. Benign interregnum or (gradual but volatile) transition to global

policy normalization

4. Brazilian economy is resilient to go through this transition

5. Conclusions

3

Ample Global liquidity (UMP)

and its effects on EME and

Brazil

4

Global UMP and its Potential Effects for Emerging Economies

• After end-2008 crisis, advanced economies pursued unconventional monetarypolicies to reinvigorate economic activity

• EMEs economies were affected by sudden floods of capital, and were subjectedto effects like:

High values for assets price and equity prices

Exchange rate appreciation

Increased corporate forex exposure

5

Unconventional Monetary Policy (UMP)

2

4

6

8

10

12

14

16O

ct-0

6

Ap

r-0

7

Oct

-07

Ap

r-0

8

Oct

-08

Ap

r-0

9

Oct

-09

Ap

r-1

0

Oct

-10

Ap

r-1

1

Oct

-11

Ap

r-1

2

Oct

-12

Ap

r-1

3

Oct

-13

Ap

r-1

4

Oct

-14

Ap

r-1

5

Oct

-15

Ap

r-1

6

Oct

-16

Tota

l val

ue

(U

SD T

rilli

on

)

Central Bank Balance Sheet (Fed, ECB, BoE, BoJ)

Source: Bloomberg

6

Capital Flows Surge in EME and Latin America 2009-2013

Source: IMF, BIS

7

Capital Flows Surge in LA: Country Evolution (2009-2012)

Source: IMF, BIS

8

-60

-40

-20

0

20

40

60

80

100ja

n 0

6

jul 0

6

jan 0

7

jul 0

7

jan 0

8

jul 0

8

jan 0

9

jul 0

9

jan 1

0

jul 1

0

jan 1

1

jul 1

1

jan 1

2

jul 1

2

trade financial total

Financial and Trade related net capital inflows in Brazil: Surge Evidence

Source: BCB

Net FX Inflows

US

$ b

illio

n–

12

Month

Flo

ws

9

Risk Premium thru BBBs and BBs: Brazil bellow average in 2010-2013

Source: Bloomberg

0

100

200

300

400

500

600

700

800

900

Ja

n-0

8

Ju

l-0

8

Jan-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

Ja

n-1

1

Jul-11

Jan-1

2

Ju

l-1

2

Ja

n-1

3

Ju

l-1

3

Ja

n-1

4

Ju

l-1

4

Ja

n-1

5

Ju

l-1

5

Ja

n-1

6

Ju

l-1

6

Brasil Average BBs Average BBBs

5Y CDS (*)

bas

is p

oin

ts

*through November 11th

10

Effects of capital flows surge in

Brazil (2009-2012)

11

Nominal and Real Effective Exchange Rate (*) Appreciation

Source: BCB

Jun

94

=10

0

R$

/ U

S$

* 15-currency basket

1,5

2

2,5

3

3,5

4

4,5

70

80

90

100

110

120

130

140Ja

n-0

9

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Real Effective Exchange Rate - LHS Nominal Exchange Rate - RHS

12

International Reserves Accumulation

Source: BCB

0

50

100

150

200

250

300

350

4002

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Sep

20

16

USD

Bill

ion

International Reserves - Brazil

13

Policy Responses in Brazil involved various tools

• Prudential measures

• Central bank intervention

• IOF tax as a capital flows management tool

Quantitative effects on each of these measures to decreasemacroeconomic volatility due to capital inflows are still a matter ofresearch.

14

Benign interregnum or (gradual

but volatile) transition to global

policy normalization

15

Context suggested a transition to normalization in a relatively smooth path:

Supportive monetary condition maintains risk appetite for EME´s assets

Improvement in growth expectations for China and certain accommodation

in commodity prices

Relative recovery in emerging markets asset prices

But EME will be subjected to bouts of volatility along the transition:

Impacts from Brexit had been short lived and reversed through time

Uncertainty based on yield curve movements after USA´s elections risks

Transition to Normalization in US amid UMP in other globe areas

16

Benign Interregnum: Low yields and high liquidity are yet prevailing

Source: BCB, Bloomberg.

-1

0

1

2

3

4

5

6N

ov-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

No

v-1

3

No

v-1

4

No

v-1

5

No

v-1

6

US UK DE JP CH

10 Year Government Bond Yields (%)

(%)

17

Transition with Volatility: EME´s yields and forex movements

Source: Bloomberg

Sustained recovery in EME´s currencies despite short term (after Nov) movements

Exchange – Emerging MarketsCurrencies and 5-yr bond yields variation (%)

after November

Yie

ldV

ari

ati

on

(p.p

)

Ap

r2

01

3 =

10

0

Currencies variation* Germany bonds used for Eurozone

18

Transition with Volatility: EME´s risk premiums

Source: Bloomberg, Thomson Reuters Datastream

EME: Despite recent volatility risk premiums were relatively well behaved

Sovereign CDS – 5YR

Selected EMECDS – Emerging Markets

TurkeySouth Africa

BrazilRussiaMexico

20162015

19

Brazilian Economy is

resilient to global

monetary policy transition

20

Resilience Factors in Brazil: Financial System and External Accounts

• Low overall exposure to forex liabilities including corporates, large

domestic investor base for public debt financing and sound current

account financing through FDI assure resilience to (negative)

headwinds from the international economy and limit contagion from

external volatility

• Financial system with solid capital structure and limited leverage,

despite historically large recession.

21

Resilience Factors in Brazil: Fiscal and Monetary Policies

• Fiscal Reforms are underway. Constitutional Amendment that leads

to a government expenditure cap is to be approved this year. Social

security reform will be discussed in congress next year.

• Monetary policy transparent in its goal to achieve the inflation target

of 4.5% in 2017 and 2018.

22

Brazil’s Liabilities Position: Relatively Low Exposure to Forex

Brazil’s International Investment Position

Source: BCB

USD bn 557.8

USD bn 774.1

0

200

400

600

800

1000

1200

1400

Assets Liabilities

Sep 2016 Position

Total: USD bn 1,464.7

Liabilities denominated

in BRL

Liabilities denominated

in other currencies

Assets

USD bn 906.9

23

Brazil: Solid External Debt and International Reserves Positions(*)

Source: BCB

*debt in Sep/16; reserves on November 17th

373.5

-25.8

-150

-100

-50

0

50

100

150

200

250

300

350

400

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

international reserves FX swap position

373.5

-100

-50

0

50

100

150

200

250

300

350

400

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

20

16

*debt reserves

24

Brazilian Case: Low Corporate´s Unhedged Forex Exposure

Source: BCB (Financial Stability Report Sep 16)

35,8%

11,1%

9,8%

22,3%

21%

exporter

non exporter with hedge

non exporter without hedge - headquarters abroad

non exporter without hedge - with assets abroad

non exporter without hedge - others

Debt in Foreign Currency by Type of Debtor (*)

*through June 2016

25

Brazil: Solid Net Foreign Direct Investment Flows (*)

Source: BCB

* According to the new methodology as of 1995

73,2

-24,4

7,2

-40

-20

0

20

40

60

80

100

120S

ep-0

1

Sep-0

2

Sep-0

3

Sep-0

4

Sep-0

5

Sep-0

6

Sep-0

7

Sep-0

8

Sep-0

9

Sep-1

0

Sep-1

1

Sep-1

2

Sep-1

3

Sep-1

4

Sep-1

5

Sep-1

6

direct investment liabilities

fixed income

equities and investment funds

US

$ b

illio

nin

12 m

onth

s

26

Conclusions

27

Conclusions and Possible Topics for Discussion

• Spillovers and spillbacks of UMP has received great interest and sparkedrenewed efforts of international policy coordination in a global scale.

• These spillovers and spillbacks of UMP and a normalization process will mostlikely affect the policy mix in EME.

• No silver bullet (just keep doing the right things): Sound fiscal policies that boost confidence International Reserves Monetary Policy seeking a clear target Regulatory framework that guarantees stable financial system

Tiago BerrielDeputy Governor for International Affairs

and Corporate Risk Management

BOFIT Anniversary ConferenceHelsinki, Finland

November, 22nd 2016

Thank You!