Fitch wants Brazil’s next government to adjust policies

April 10, 2014

Walter Brandimarte – Reuters, 4/10/2014

Fitch Ratings on Thursday said it expects Brazil’s next government to support the country’s credit rating by making policy adjustments to improve its fiscal performance and boost investor confidence.

In a conference call with investors, Fitch analyst Shelly Shetty said low growth rates and a deterioration in fiscal accounts are the firm’s main concern about Brazil, which remains rated at BBB with a stable outlook.

Her remarks suggest Fitch is willing to give the benefit of the doubt to the next Brazilian president, to be elected in October. They also may help to allay fears Brazil would soon suffer another sovereign downgrade, following Standard & Poor’s decision to cut the country’s rating to near junk level last month.

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“It is time to restructure the tax system in Brazil rather than simply fix its flaws”

April 9, 2014

Instituto Millenium, 4/8/2014

Year in, year out, the urgently necessary tax reform continues to be delayed. The complexity of Brazil’s tax system erodes industrial competitiveness and affects the poorest sections of society, who need better quality public services and lower taxes. Collection increases every year. According to the “tax meter,” in 2014 alone, Brazilian society has paid more than BRL $400 billion to tax authorities. Worse yet, they do not see returns in goods and services and cannot understand where the money goes.

To discuss the complexities of the tax system, the Milennium Institute interviewed José Roberto Afonso, economist and researcher at the Brazilian Institute of Economics (Ibre/FGV). An expert on the subject, José Roberto does not believe it is possible to twerk the current system and make it efficient, “What we need is another tax system, after all, the current one is almost 50 years old, and the world and Brazil have changed.”

Read the full interview in Portuguese here.


Brazil economists see faster inflation and slower growth in 2014

April 7, 2014

Matthew Malinowski – Bloomberg, 4/7/2014

Brazil economists raised their 2014 inflation forecast for the fifth straight week and cut their growth estimates as a food price shock curbs purchasing power in the world’s second-largest emerging market.

Brazil’s inflation this year will accelerate to 6.35 percent, compared with the previous week’s forecast of 6.30 percent, according to the April 4 central bank survey of about 100 analysts published today. Analysts also cut their 2014 growth estimates to 1.63 percent from 1.69 percent a week ago.

President Dilma Rousseff’s administration is struggling to spur growth amid above-target inflation. Brazil’s central bank last week lifted the key rate for the ninth straight time after a drought drove up food prices. Policy makers in an accompanying statement signaled they will observe economic progress before deciding on the future path of monetary policy.

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Investment inflow in Brazil remains strong, says central banker Tombini

March 13, 2014

Merco Press News, 3/13/2014

Tombini told attendants at an event in São Paulo sponsored by Goldman Sachs Group Inc that the pace of Brazil’s economic expansion this year should be similar to 2013′s growth rate. He said that the impact of monetary policy is “cumulative” and “comes with a lag time,” adding policies at the current moment must stay “especially vigilant” of inflation.

Steady foreign investment has helped cover Brazil’s growing current account deficit, alleviating pressure on the foreign exchange market. Brazil’s trade deficit has increased recently as the appetite for imports, especially fuel, remains strong and overseas trips by Brazilian tourists taking advantage of a still strong currency.

Rising interests rates have made Brazil more attractive to foreign investors by offering a higher return. The central bank is widely expected to raise its benchmark interest for a ninth straight time in April to 11.00%, the highest since early 2012.

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Brazil’s swap rates decline as food inflation slows; real falls

March 12, 2014

Filipe Pacheco – Bloomberg Businessweek, 3/12/2014

Brazil’s shorter-term swap rates dropped as a report showed food and beverage prices rose at a slower pace in February, adding to speculation that the central bank will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2016 fell six basis points, or 0.06 percentage point, to 12.05 percent at 12:08 p.m. in Sao Paulo. The real depreciated 0.1 percent to 2.3665 per U.S. dollar.

The national statistics agency reported today that food and beverage prices climbed 0.56 percent in February after increasing 0.84 percent in the prior month. To curb inflation, policy makers lifted the target lending rate at their meeting last month by 25 basis points to 10.75 percent, half the pace of the previous six decisions.

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Brazil’s Petrobras seeks to sell at least $3 billion debt

March 10, 2014

Rogerio Jelmayer & Matthew Cowley – The Wall Street Journal, 3/10/2014

Brazilian oil company Petróleo Brasileiro SA jumped into the global bond market Monday as it continues to borrow heavily to meet its enormous investment plan.

Petrobras, as the firm is known, plans to raise at least $3 billion from the sale of six sets of dollar-denominated bonds, including fixed-rate bonds and floating-rate debt, according to a term sheet provided by a banker. The fixed-rate bonds will mature in three, six, 10 and 30 years, while the floaters will mature in three and six years, the sheet said.

According to another person familiar with the transaction, total demand for the bonds has reached around $12 billion so far.

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Brazil economists lower selic forecast for second straight week

March 10, 2014

Matthew Malinowski – Bloomberg, 3/10/2014

Brazil economists cut their 2014 key interest rate forecast for the second straight week, as 350 basis points in borrowing cost increases since last year threaten to undermine growth.

Brazil’s central bank will lift the benchmark Selic to 11 percent this year, compared with analysts’ estimates of 11.13 percent last week and 11.25 percent two weeks ago, according to the March 7 central bank survey of about 100 economists published today.

President Dilma Rousseff’s administration is combating prospects of faster inflation and slower growth. While the economy expanded more than analysts’ estimates in the fourth quarter, both consumer and industrial confidence remain low. The central bank on Feb. 26 halved the pace of key rate increases as factors including a weaker real pressure consumer prices even as demand remains uneven.

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Brazil’s Real falls to one-week low after trade deficit report

March 7, 2014

Filipe Pacheco – Bloomberg, 3/7/2014

The real declined to a one-week low a day after Brazil posted a trade deficit and foreign-exchange outflows, reducing the currency’s allure.

The currency depreciated 0.2 percent to 2.3302 per U.S. dollar at 9:48 a.m. in Sao Paulo, the biggest decline among major currencies tracked by Bloomberg after the South African rand. The real pared its weekly advance to 0.7 percent. Swap rates on contracts due in January 2017 rose four basis points, or 0.04 percentage point, to 12.41 percent, extending their increase since Feb. 28 to 15 basis points.

“The market didn’t like the trade deficit and the outflow numbers from yesterday,” Jose Carlos Amado, a foreign-exchange trader at Renascenca DTVM in Sao Paulo, said in a phone interview. “That should weaken the currency. It should get back to a lower level, around 2.34 per dollar.”

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Brazil swap rates rise after Central Bank minutes as Real gains

March 6, 2014

Filipe Pacheco – Bloomberg, 3/6/2014

Brazil’s swap rates climbed after the central bank said that it would be appropriate to keep adjustinginterest rates given persistent inflation.

Contracts due in January 2017 rose five basis points, or 0.05 percentage point, to 12.33 percent at 11:34 a.m. in Sao Paulo. The real advanced 0.5 percent to 2.3080 per dollar today, the strongest level on a closing basis since Dec. 10.

The central bank, which slowed the pace of interest-rate increases to 25 basis points last month after six straight half-point adjustments, said in minutes of the meeting published today that it considers “the continuation of the adjustment of monetary conditions under way” to be appropriate. Policy makers have raised borrowing costs 350 basis points since April to 10.75 percent. Consumer prices jumped 5.65 percent in the year through mid-February, above the bank’s 4.5 percent target.

“The minutes show there will be a change of 0.25 percentage point in the next meeting,” Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro, said in a phone interview. “It showed that there still are concerns regarding inflation.”

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Brazil signals further tightening on persistent inflation

March 6, 2014

Matthew Malinwoski & Raymond Colitt – Bloomberg, 3/6/2014

Brazil’s central bank signaled today it will continue tightening monetary policy as above-target inflation remains persistent. Swap rates rose.

Policy makers led by bank President Alexandre Tombini voted unanimously on Feb. 26 to slow the pace of rate increases, raising the benchmark Selic rate to 10.75 percent from 10.5 percent after six straight half-point increases. The central bank’s monetary policy will help offset inflationary pressure from a currency depreciation, officials said in the minutes of their Feb. 25-26 meeting published online today.

The central bank considers “appropriate the continuation of the adjustment of monetary conditions under way,” according to the minutes. “Currency depreciation constitutes a source of inflationary pressure in the shorter term.”

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