Central Bank opens doors to further cuts

The Brazilian government is scrambling its monetary policy to fend off further falls in industrial production and to boost flagging GDP. In the latest move, the government has cut obligatory minimum rates in savings accounts. There are likely to be more rate cuts to come particularly in the absence of a coherent fiscal policy to boost industry.

A fierce series of interest rate cuts has brought rates down to 9% in nominal terms, less than 4% in real terms. Until recently, that was seen as the end of the line. Now, there are signs that the Central Bank is going to risk pushing rates even lower. Together with a push to slash bank spreads and boost the economy through credit, this could push Brazil into danger territory and risks reigniting inflation, long the Achilles’ heel for Brazil.

So far, there has been little attempt to use fiscal policy to help out industry except in a rather cag-handed way of favouring those industries that clamoured most loudly. It seems that all the onus will stay on monetary policy with the expectation that a depressed global economy will restrain inflation.

Lower rates have already had a significant effect on the real, now at its lowest levels in three years. That should help sustain foreign direct investment: many canny managers had been increasingly reluctant to make investments in a country with an overvalued currency and were considering other locations in Latin America. They are likely to now look afresh at Brazil: they should be wary of the sting of inflation.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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