Brazil: Still some risks to this rates compression - Scotiabank
|Eduardo Suárez, VP at Scotiabank, suggests that a combination of reform progress (in which they think the TJLP changes are particularly relevant—even if they expect a gradual impact), the Brazilian Central Bank’s revamped credibility, and a stabilization in public finances has allowed rates to drop quite substantially.
Key Quotes
“This in turn is giving the highly indebted economy some relief, and is boosting consumer spending by freeing up disposable income. However, there are still some risks to this rates compression, which are to a large degree linked to politics.”
“On the political front, there are two main sources of uncertainty: the 2018 Presidential elections, and whether the government will be able to approve the key reforms. In our view, the most important reform will be pensions, which is highly relevant for the country’s fiscal sustainability, but it may also play an important part in next year’s presidential elections because given its unpopularity, approving pensions reform could open the way for the PT to defeat the reformers.”
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