Why Brazil’s central bank shouldn’t raise rates when inflation rises

I was speaking to a debt capital markets banker about Brazil’s recent international debt transaction – a re-tap of its 2047s. The obvious issue was that it came to market just one week after Standard & Poor’s downgraded the sovereign. But the banks – Citi, HSBC and Morgan Stanley – managed to tighten pricing down to 5.6% (after early guidance of 5.8% for $1 billion) and raise $1.5 billion. 

International investors shrugged off the downgrade just as equity and FX investors had done the previous week.