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. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 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. 

Another related and well-appreciated point, because finance officials regularly brief about it, is that in a stress test (ie depreciating FX), Brazil’s net public debt goes down because the country has large net FX reserves (assets), while liabilities are almost exclusively in local currency, the real.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

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