Brazilians do it better
June 16, 2023 Leave a comment
The blue line in the attached chart represents the Brazilian 2 year bond yield.
It has fallen from 14.8% to 11.4%.
The orange line plots Brazil’s inflation rate.
It has abated from 12% to 4%.
Today, Brazil’s inflation rate is back to where it spent most of 2018 and 2019. Funnily, it’s also at the same level as the United States.
The Brazilian central bank started hiking rates in March 2021. That was 1 year before G10 nations did.
Brazil’s central bank rates increased by a factor of 7.
From 2% to 13.75%.
They stopped raising rates in September 2022 and now for the 6th consecutive meeting have paused.
It would bode well for the central banks of other commodity sensitive economies such as Australia and Canada to study Brazil’s interest rate strategy, although Aussie and Canadian citizens are amongst the most indebted households in the world.
This poses a social and political risk to those central banks possibly ‘breaking the system’.
Brazilians are not so indebted.
While I expect the Brazilian 2 year bond yield to converge towards its 200 week moving average, perhaps somewhere close to 9.20%, for now bond yields are oversold and they should now hold these levels and move a little higher as will inflation.
p.s. at the bottom of this page are 3 links of recent articles I have written on the topic Brazilian interest rates.
June 16, 2023
by Rob Zdravevski
rob@karriasset.com.au
About Rob Zdravevski
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