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Brazil Is Expected To Have A Significant Public Debt

Despite the three cuts in key rates granted this year by the Brazilian central bank, rates on the Brazilian bond continue to climb. The consolidation of public accounts will be essential to restore investor confidence.

By EC Invest

Brazilian assets are also experiencing a difficult period. In question are President Lula’s statements that lower policy interest rates and an improvement in the way taxes are collected will reduce deficits.


Investors dislike this fanciful speech

They are well aware that, without a credible program of reducing public deficits and consolidating finances, bond yields will not fall, even if the Brazilian Central Bank remains on the path of lowering policy rates.

This phenomenon is currently being witnessed: The Brazilian policy rate, Selic, which ended in 2023 at 11.75%, has been revised down three times since then, not to exceed 10.5%.

At the same time, Brazilian 10-year sovereign debt rates have increased from around 10.4% at the end of 2023 to 12.1% today. In question, the fact that if the Minister of Finance multiplies efforts in order to achieve a primary balance (deficit excluding interest on the debt) at balance, he has still not been rewarded by the Brazilian Congress which blocks the measures proposed so far.

Given this uncertainty, investors prefer to wait until there is greater clarity on how Brazil will balance its public accounts. This affects Brazilian debt, the real, and the equity market.

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