15 January 2009

Does BCB plan change Brazil's interest rate outlook

Guillermo Parra-Bernal believes that the new $20 billion Banco Central Brasil plan to help Brazilian producers refinance maturing foreign debt raises the odds that BCB will lower the monetary policy rate on 21 January by 75bp to 13.00%:
A plan outlined last night by Banco Central Brasil President Henrique Meirelles to ready $20 billion in funds to help local companies refinance maturing debt overseas indicates that corporate liquidity problems will probably persist for another quarter or two. Meirelles, the former Bank Boston executive, reaffirmed a commitment made in November that the government will use any sources of money at hand (even international reserves) to help about 4,000 companies roll over maturing obligations. Brazil had $205 billion in reserves at the start of this year.

We discussed in this a few days ago the problems facing Arantes, Cosan and other commodity, food and cellulose producers. Access to credit will normalise in a few months, but the problem is time and availability of funds. According to ING Bank, Brazilian companies face more than $60 billion in bond and loan maturities throughout the year. Trade loans were cut off at the height of the crisis in early October -- the central bank had to intervene and commit more than $9 billion in reserves money for that purpose.

If there is a consequence to this announcement -- apart from the sigh of relief that some corporate managers might have made following Meirelles remarks, -- is that the BCB will engage with a more aggressive interest rate-cut than initially planned for next week. My bet is a 75 basis-point cut, what is yours?
but he doesn't explain why.

I shall ask him.


Guillermo Parra-Bernal considera que el nuevo plan de $20 mil millones anunciado por el Banco Central de Brasil para ayudar a productores brasileños a refinanciar deuda extranjera que vencerá en el corto plazo aumenta la probabilidad de que el BCB reducirá su tasa de política monetaria el 21 de enero en 75pb a 13,00%, pero no explica por qué.

Se lo preguntaré.

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