Brazil credit ratings cut to junk by Moody’s

Paulo Sambo and Felipe Pacheco – Bloomberg, 02/23/16

Brazil’s sovereign rating was cut to junk by Moody’s Investors Service, the last of the major ratings companies to strip the country of its investment grade, as President Dilma Rousseff struggles to shore up fiscal accounts amid deepening political turmoil.

The country’s benchmark stock gauge declined the most in two weeks and the currency weakened after the rating was reduced two steps to Ba2. The outlook is negative, meaning more downgrades may be coming, Moody’s said in a statement Wednesday.

Brazil’s credit metrics have deteriorated “materially” in the past few months and will worsen over the next three years, according to the ratings company, which also cited the negative impact of political gridlock on the government’s efforts to close a budget deficit and undertake structural reforms. The cut — Brazil’s third in as many months from major ratings companies — adds pressure on Rousseff to win lawmakers’ support for measures to raise taxes and reduce spending as she fights off efforts to impeach her.

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Brazil’s Levy tells investors fiscal adjustment to correct ‘slippage’

Herbert Lash – Reuters, 2/18/2015

Brazil is removing the last vestiges of tax cuts and government spending aimed at bolstering the economy as officials work to correct the fiscal slippage of the last few years, Finance Minister Joaquim Levy told investors on Wednesday.

Levy said that the government of President Dilma Rousseff will work to meet its primary budget surplus goal of 1.2 percent of gross domestic product in 2015.

“We are just taking these anti-cyclical measures away, and this will put us on better footing,” Levy said in his first public address to investors in the United States.

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Brazil registers record deficit in current accounts

Lise Alves – The Rio Times, 1/26/2015

Brazil’s current accounts in 2014 registered a record deficit of US$90.948 billion, according to data released by Brazil’s Central Bank (CB) on Friday, January 23rd. The result was well above 2013’s deficit of US$81.108 billion and the highest registered since the CB started the series in 1947.

Last year’s annual deficit is equivalent to 4.17 percent of the country’s GDP, the worst result since 2001.

The Central Bank released both December 2014 results as well as results for the entire year. For December, the country’s current account, which is measured by the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers, registered a deficit of US$10.317 billion.

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Brazil’s 2015 economic outlook darkens as fiscal measures bite

Reuters, 1/26/2014

The outlook for Brazil’s economic health this year has worsened considerably, according to data released on Monday, as analysts weigh the impact of painful fiscal measures and consumers become increasingly worried about the future.

Economists sharply raised their forecasts for Brazil’s 2015 inflation rate while slashing their economic growth estimate for the year, a weekly central bank poll showed on Monday.

The median forecast of about 100 market economists shows 2015 ending with inflation at 6.99 percent, up from 6.53 percent a month ago. Brazil’s government targets a rate of 4.5 percent, with a tolerance margin of two percentage points.


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Brazil: Seeking Realism

Monica de Bolle – Huffington Post, 1/21/2015

It is inconvenient, if not outright annoying, that most analysts who follow Brazil closely tend to see through the lenses of over-optimism or excess pessimism. Lately, due to a string of dismal economic numbers and fears over the repercussions of a major corruption scandal brewing at the oil giant Petrobras, Brazil’s largest company, excessive pessimism has taken hold over the economic commentary and media reports. Reality, as always, is neither here, nor there. It is certainly not the best of times, but that does not mean that the country is headed towards the worst.

Restoring growth, especially after wayward economic policies of the last four years, has been a struggle. Currently, the economy is stagnating while inflation remains high, tantalizingly close to the top range of the inflation target (6.5%). Fiscal outturns have been mired in disappointment: Brazil will likely post its first primary deficit in nearly two decades once the results for December 2014 are finally published. Even if the country manages to avoid a deficit, fiscal accounts are weak and adjustment is long overdue. On the external front, a growing current account deficit and lack of sufficient foreign flows to finance it have brought back the old reality of external financing constraints that characterized Brazil over the last several decades, with the exception of two distinct periods: the so-called “Economic Miracle” years of 1968-1973, and the height of the commodity boom between 2003-2008. Both periods of buoyancy and optimism ended with substantial international turbulence, either in the form of oil price shocks during the 1970s, or as an unprecedented financial crisis that held the global economy hostage, in 2008.

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Brazil Raises Taxes by $7.5 Billion in Quest for Confidence

Mario Sergio Lima and Rachel Gamarski – Bloomberg, 1/20/2014

Brazil’s government will raise taxes on fuel, imports, credit and cosmetics as part of efforts to restore confidence in its fiscal discipline, Finance Minister Joaquim Levy said.

The measures will increase revenue by more than 20 billion reais ($7.5 billion), he told reporters Monday in Brasilia after markets closed. As part of the new policy, Brazil will resume collection of the so-called Cide tax on fuel and raise taxes on loans to individuals and imports. President Dilma Rousseff also vetoed Tuesday a tax break on income tax approved by Congress that would cost the government about 7 billion reais.

“This is a series of actions being taken to re-balance the economy, particularly from a fiscal perspective with the aim of improving confidence,” Levy said. Brazil is “making changes step by step so it can reach, with as little sacrifice as possible, what’s needed to resume the path to growth.”

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Brazil will not bail out electric utilities, Levy says

Alonso Soto – Reuters, 1/13/2015

The Brazilian government will not give any extra funds to indebted power utilities this year to avoid further harm to its finances, Finance Minister Joaquim Levy said on Tuesday in another sign of fiscal restraint to regain markets’ trust.

Speaking at a breakfast meeting with reporters in Brasilia, Levy also said that to bring electricity rates more in line with reality, consumers should pay the rising prices caused by lower output from hydroelectric power plants.

“Fare realism” will help consumers and companies better plan for the future and ease the burden on strained government coffers, Levy said.

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Brazil’s Levy says any tax hikes to have little impact on growth

Alonso Soto – Reuters, 1/13/2015

Any tax increases implemented as part of Brazil’s push to improve the nation’s fiscal accounts will have a “minimum impact” on economic activity, Finance Minister Joaquim Levy said on Tuesday.

Speaking at a breakfast meeting with reporters in Brasilia, Levy said bringing Brazil’s gross debt below 50 percent of gross domestic product was “a positive long-term goal.” He also expressed confidence that the nation’s sovereign credit rating would not suffer a downgrade.

Levy took office this month promising to restore fiscal discipline in President Dilma Rousseff’s second term after warnings from credit rating agencies of a possible downgrade.

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Real Heads for Weekly Drop as Brazil Refrains From Swap Rollover

Filipe Pacheco – Bloomberg, 8/1/2014

Brazil’s real was headed for its biggest weekly decline since January as the central bank refrained from starting a rollover of foreign-exchange swap contracts supporting the currency.

The real declined 1.3 percent to 2.2590 per U.S. dollar this week, the most since Jan. 24, after advancing 0.2 percent today as of 3:42 p.m. in Sao Paulo. Swap rates, a gauge of expectations for interest-rate moves, increased 11 basis points, or 0.11 percentage point, to 11.60 percent on contracts due in January 2017. They have climbed 36 basis points since July 25.

While the central bank sold $198.7 million of currency swaps today to bolster the real and limit import price increases, it allowed the remaining $2.81 billion of contracts maturing at the beginning of the month to expire and hasn’t called an auction to extend the maturity on $10.07 billion in swaps maturing Sept. 1. The sale of swaps has helped push the currency up 4.3 percent this year.

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Brazil’s Central Bank may change currency program to manage currency’s value

Paulo Trevisani – The Wall Street Journal, 5/7/2014

The Brazilian central bank may be about to change its currency policy widely credited with stabilizing the exchange rate during last year’s turmoil in emerging markets, according to market observers.

Since October 2013 the bank has been holding pre-announced auctions of futures contracts to provide a way out for investors in case their bets on the Brazilian real went sour.

The idea was to offer predictable hedge options, so investors would be less afraid of holding the local currency at a time when the Federal Reserve was mulling a wind down of the bond-buying policy that beefed up emerging-market currencies for years.

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