Interest rate rise: Fed move threatens to extend Brazil’s woes

John Paul Rathbone – Financial Times, 9/8/2015

The president may be impeached as part of a corruption scandal, the economy is in recession, unemployment is rising, the currency has collapsed and local interest rates have been jacked up to quash inflation. The last thing that Brazil needs is higher US interest rates as well — even if most Brazilians have more pressing domestic concerns on their mind.

“It’s crazy. Brazil is back to the past again. It’s broken. We can’t even think about getting into overdraft,” said Raul Shinohara, a 61-year-old engineer, lamenting that his credit card charges an annual rate of 372 per cent.

“I hope things get better because if they don’t, it is going to get complicated,” added Maria Lucia Santos, a 58-year-old state sector employee, as she window-shopped in São Paulo.

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Desperate times, desperate moves

The Economist, 9/5/2015

When a president has single-figure approval ratings, faces calls for her impeachment, and has lost control of her political base, is she in a position to play hardball with the country’s legislators? Brazilians will soon find out.

On August 31st Dilma Rousseff, their president, sent Congress a budget for 2016 with a gaping primary deficit (before interest payments) of 30.5 billion reais ($8 billion), or 0.5% of GDP, challenging its members to close the gap. It was a break with the sound-money practices that have underpinned Brazil’s economy. It was, some critics say, illegal. Certainly nothing similar has happened since at least 2000, when Fernando Henrique Cardoso, then the president, transformed public finances.

On a charitable view, Ms Rousseff was shocking legislators into making hard decisions rather than simply blocking her fiscal proposals. A harsher reading is that she does not know how to lead Brazil out of recession. The markets took that view. The day after the budget bombshell, the Ibovespa stock index fell over 2% and the currency closed at 3.7 per dollar, its lowest since December 2002.  On September 2nd, the central bank held steady a key interest rate it had been raising since last year.

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LATAM WRAP-Venezuela rallies as Brazil continues to underperform

Paul Kilby – Forbes, 9/3/2015

Brazil remained the underperformer on Thursday in an otherwise buoyant day for Latin American bond markets as oil prices recovered and investors focused on specific credit stories.

Brazilian credits remained under pressure amid speculation that Finance Minister Joaquim Levy may eventually step down following the country’s first-ever budget to forecast a primary deficit.

Petrobras 2024s were being quoted 10bp wider, albeit at a wide bid-offer spread of 620bp-635bp.

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Brazil’s state-run banks try to boost sagging industries

Rogerio Jelmayer – The Wall Street Journal, 8/19/2015

Brazil’s government will use state-run banks to help out local industries that are suffering because of the country’s poor economy.

Banco do Brasil SA and Caixa Economica Federal, both state-controlled banks, will provide credit lines with lower interest rates for certain industries, mainly auto makers, the lenders said Wednesday.

Banco do Brasil will offer a new credit line worth 9 billion reais ($2.6 billion) to various sectors of the economy, including 3.1 billion reais for the auto sector. The bank didn’t say what other sectors will benefit from the program.

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Economists see Brazil economy extending contraction into 2016

Guillermo Parra-Bernal – Reuters, 08/17/2015

The Brazilian economy is expected to shrink next year, on top of a sharp contraction forecast for this year, according to a weekly central bank survey of economists published on Monday.

The median forecast of about 100 financial institutions projected a contraction of 0.15 percent in Brazil’s gross domestic product in 2016, down from stability in the prior week’s survey. Economists in the same survey expect the economy to shrink 2.01 percent this year, steeper than 1.97 percent the prior week.

The survey also showed a slight increase in inflation forecasts for 2016, to 5.44 percent, from 5.43 percent previously. Estimates for gains in consumer prices this year remained unchanged at 9.32 percent.

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Brazil’s stocks lead world losses as real approaches 12-year low

Andressa Lelli, Filipe Pacheco, Paula Sambo – Bloomberg Business – 8/13/2015

Brazilian banks sent the Ibovespa to the biggest slide in the world after Banco do Brasil SA joined Itau Unibanco Holding SA in allocating more money for soured loans. The real approached the lowest level in 12 years.

Financial shares in the MSCI Brazil Index sank to a six-year low on speculation other lenders will be forced to bolster so-called provisions. The stock benchmark dropped for a third day, while the real extended this year’s plunge to 24 percent. Swap rates, a gauge of expectations for borrowing costs, rose.

Lenders have suffered from a slowdown in consumer purchases as financing gets more expensive with interest rates at a nine-year high. The selloff in banks has intensified since May on concern that President Dilma Rousseff’s decision to boost taxes on the industry’s profits will erode earnings.

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Brazil’s BankFacil secures $3M, launches low-rate consumer loans

Lizette Chapman – The Wall Street Journal, 8/3/2015 

BankFacil aims to make getting a consumer loan in Brazil inexpensive and easy and has raised venture backing to do it.

The online lending startup has built an underwriting platform targeting what founder and Chief Executive Sergio Furio believes is a massive and untapped opportunity: extending personal loans to Brazilians who own homes and cars but aren’t using them as collateral.

This group has a collective debt of R$178.7B ($52.2B USD) across credit card financing, personal loans and overdraft fees and is paying an annual interest rate of 178.8%, according to a report this month by Brazil’s Central Bank. BankFacil investors believe the three-year-old startup can do a better job of serving those customers.

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