In the past year, it rained pretty hard on Brazil’s burgeoning economy. Its Bovespa stock index is been halved since hitting a record high in May. During that fall, Brazil’s currency, the real, tumbled more than one-third from its nine-year high.

In the fourth quarter, commodity prices and consumer demand continued falling, leading to a loss of 654,946 government-registered jobs in December – the worse monthly loss since the government began tracking jobs data in 1999.
With the interest rate cut – a moved allowed by falling inflation – the central bank hopes the $1.9 trillion economy can keep pace with President Lula’s 2% economic growth target for 2009, a small figure compared to the 6.8% expansion registered by the Brazilian economy in the third quarter of 2008, Bloomberg reported.

Inflation cooled to 5.9% in December, falling within the bank’s target of 2.5% to 6.5%.

“We have a good macroeconomic situation to cut interest rates,” Alexandre Lintz, chief economist at Banco BNP Paribas Brasil SA, told Bloomberg.

Brazil Outlook

In the next three years, China, alone will invest as much as $725 billion in infrastructure, while Brazil will invest $225 billion with very similar goals:

• Strengthen fiscal stimulus, allowing a drop in the value of the real currency (a decline that’s already been substantial) in order to cushion exports.
• Easing capital requirements to Brazil’s strong banking system, which will spur housing and car loans.
• Export financing.
• Begin huge local infrastructure projects.

There is another little-understood phenomenon that cushions the blows for emerging economies: Intra-emerging market trade has become increasingly important.  By now everybody understands that iron ore from Brazil and coal and oil from other emerging markets is flowing into China in order to fuel China’s massive infrastructure buildup and growing consumer demand.

Money Morning Contributing Editor and emerging market specialist, Horaocio Marquez feels Brazil will pull itself through the financial crisis because historically and presently, the Central Bank of Brazil and the Brazilian government have acted very quickly to backstop the liquidity effects against their banks.

Both are run by a superb team of experienced managers, especially adept at controlling the till in rough economic waters, Marquez said.

“The policies, run day to day by a sophisticated technocracy led by top economists and international bankers, many of which held top positions in leading international banks, have allowed Brazil to move forward,” Marquez said. “Hence, Brazil is by far my favorite Latin American play for 2009.”

Source: Brazil Cuts Interest Rates for First Time in 16 Months

Citigroup strategist Geoffrey Dennis forecast the Bovespa stock index may drop to 65,000 by ‘mid-summer’ from the May 30 close of 72,592.50. The index fell 1 percent to 71,897.25. The New York-based strategist kept his end-year forecast for the Bovespa at 74,000.

“Our mid-summer sell-off is 65,000 on the Bovespa, based on a big pullback in domestics, as interest rates and inflation rise,” the strategist wrote in a note to clients. So-called domestic stocks are shares in the consumer, industrial, utility, financial and telecom industries.

Sandy Franks in Taipan Daily, however, says that Brazil is an essential addition to your investment portfolio.

“Not only that, but investing in Brazil is a great way to protect your money against the falling U.S. dollar, the slumping U.S. economy, and the risky U.S. stock markets. And because Brazil’s economy is growing leaps and bounds, a modest investment today could grow fivefold in the coming years.

“Let me put it this way: To ignore investment opportunities in Brazil would be a horrendous mistake that could cost you dearly.”

Read on here to learn how to make maximum profit from a blue chip Brazilian mining conglomerate.