Citing brighter prospects, Moody's revises Brazil outlook to stable

Moody’s surprised the market and revised Brazil’s outlook to “stable” from “negative,” citing economic stabilization, lower inflation, improving fiscal prospects and a healthier Petrobras. The rating remains at “Ba2,” two steps below investment grade. Samar Maziad, chief analyst for Brazil, doesn’t rule out further political turmoil linked to the Petrobras scandal hurting the outlook. Nonetheless, the impeachment seemed to have cleared the path for wider reforms, she says. Banco Votorantim economist Roberto Padovani says the credit-rating agency only consolidated a market perception that had already been priced in as the Michel Temer government reached power.

Copom seen as leaving options open for faster rate cuts

Economists told Valor the Monetary Policy Committee (Copom) of the Central Bank left open the possibility of accelerating the pace of monetary easing in upcoming meetings. The Copom lowered policy rate Selic by 75 basis points to 12.25% on Wednesday. Maurício Molon, chief economist of Santander, says the market tends to react as soon as Thursday by pricing in the possibility of a 100bp cut in the next meeting, in April, if inflation trends remain favorable or the economic recovery proves even harder.

Local debt market poised to become viable funding source again

The local debt market is likely to show growth in 2017 and become a source of funding for companies again, after last year’s drought. With falling interest rates, companies begin to see positive effects both on their debt cost and in their bottom lines and banks start lending to smaller and riskier businesses.

Felipe Wilberg

Experts who structure debt sales expect the pace to continue strong for tax-exempt securities, meant for individual investors, and to improve for corporate debt, focus of institutional investors. “The year will begin strong, especially for tax-exempt securities. Our expectation is that we will have maintenance or marginal growth in the issuance of certificates of agribusiness receivables [CRAs] and we have a long pipeline of infrastructure bonds, especially for the power industry,” says Joel Schimchak, head of debt issuance at Santander.

Treasury expects Brazil to regain investment grade in 2018

National Treasury Secretary Ana Paula Vescovi says that recovering Brazil's investment grade rating is possible and viable as soon as 2018. The secretary was presenting the Annual Financing Plan (PAF) for 2017 and admitted the fiscal scenario is still adverse for this year despite improvements since the change of government last May.

BNDES offers R$13bn to accelerate recovery

Maria Silvia Bastos Marques

The Brazilian Development Bank (BNDES) will take an unprecedented role as provider of working capital to Brazilian companies. Through December 31, the bank will make R$13 billion available in its BNDES Progeren line, to bolster the capacity of creating jobs and income, of which R$5 billion will be offered directly, something that so far had never occurred in a broad way, and R$8 billion through financial agents.

The offering of working capital without the intermediation of agents is part of the new operational policies BNDES announced Thursday in the biggest revamp of the bank’s financing terms in nearly a decade. The last change was made nine years ago.

Copom forecasts below-target inflation in mid-2017

If Central Bank forecasts are right, inflation will fall below the target of 4.5% in the middle of this year, something that hasn’t happened since 2009. It will be a temporary fluctuation of the price index, absolutely normal in inflation-targeting regimes, but enough to fuel accusations of monetary policymaking overreach.

According to forecasts presented by the Central Bank’s Monetary Policy Committee (Copom) in the December Inflation Report, the Extended Consumer Price Index (IPCA) could reach 4.1% in the 12-month period ending in September. By the end of the year, inflation will rise to 4.7%.