The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.

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

M4 money supply growth could fuel inflation more than higher interest rates lower it, causing a predicament for central bank policy should inflation spike.

RD banner 600x208

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. Why? Well, the reason for the downgrade were already known – the slippage of fiscal reform – and neither the banker nor I wanted to go down the path of this pensions conversation again

Besides, he said, as far as international investors are concerned, the level of Brazilian foreign currency debt is dwarfed by its FX reserves, so there is no issue about the government being able to service coupons and maturities whatever mess it makes of the domestic accounts. 

Take out a complimentary trial

Take out a 7 day trial to gain unlimited access to and analysis and receive expertly-curated updates direct to your inbox.


Already a user?

Login now


We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree