 |
| Brazilian dreamcatchers |
Imagine what would happen in a country whose state development bank – which accounts for around 50% of corporate credit – decides suddenly and substantially to cut the level of its funding to the private sector.
And, at the same time, its government also changes the interest rates that the development bank charges from a subsidized rate far below the country’s base rate to one that is very close to that base rate (and therefore much closer to lending terms available from private-sector banks).
Imagine this is happening in a country with huge infrastructure needs; a really big country of more than 200 million people and one rich in many of the commodities most sought after by the rest of the world. And suppose that the country is also coming out of its worst-ever recession and the consensus GDP growth forecast for the next year is closing in on 3%.
Interest rates
Imagine this country’s interest rates are going to halve in a swift monetary easing cycle to around 7%; that this country’s corporates are emerging from this recession de-levered and ready to invest and take advantage of an unprecedented low cost of credit.