Brazil’s central bank tightened its rate by 25bp to 12.00%. It cites inflation risks, a moderation in activity and global economic uncertainty as reasons for the hike. It was not a unanimous decision, as there were 2 votes for a 50bp hike and 5 votes for the 25bp hike. JPMorgan was one of the banks that believed the bank would tighten by 25bp. “We expect the bank to choose a gradualist approach,” it says.
Category: Economy & Policy
Posted inDaily Brief
Brazil Expected to Hike Rate
Brazil’s central bank is expected to hike its rate by either 25bp or 50bp today from 11.75%. “We believe recent developments in the fundamental drivers of inflation do not yet allow a slowdown in the tightening of monetary policy,” Nomura says, adding that inflation readings came in higher than expected in March at 0.79%. JPMorgan meanwhile, believes the bank will only tighten by 25bp. “We expect the bank to choose a gradualist approach,” it says.
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IFC Gives Paraguay Bank Loan
The IFC has given Paraguay’s Banco Regional a $30m long-term loan to increase financing for local and small or midsized firms. The funds are directed to firms that lack financing to invest in medium and long-term projects, it adds. SMEs generate 80% of Paraguay’s employment and 60% of the country’s GDP. The loan will enable the bank to increase operations in rural areas and extend the durations of the loans it gives.
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EM Bonds on Inflow Streak
EM bond funds posted inflows of $306m in the week ended April 13, their third straight week of inflows, EPFR Global says. “Those funds with local and hard currency mandates took in similar amounts of fresh money, with retail investors net contributors for the fourth week in a row — that more than offset redemptions from blend funds,” it says. Meanwhile, Lipper data show that performance was positive. EM debt funds gained 2.78% in the week and are up 0.11% year-to-date global income funds are up 0.48% in the week and 2.25% ytd and international income funds are up 0.98% in the week and 2.86% ytd.
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LatAm Equities Shed Funds
In the week ended April 13, LatAm equity funds shed $163m, according to EPFR Global, which says this is the 12th time in the past 13 weeks the funds experienced redemptions. The funds “ran into fresh headwinds as Brazil expanded its capital controls and nationalist Ollanta Humala, seen by many as a man in the same mold as the current leaders of Venezuela and Bolivia, emerged as one of the two candidates for June’s run-off for Peru’s presidency,” it says. Brazil funds saw outflows of $89m and GEM funds gained $1.6bn. As for performance, Lipper data show a weakening in LatAm funds, which were down 3.08% in the week ended April 14 and down 1.80% year-to-date. EM funds were down 1.43% in the week, but are still up 1.85% ytd. Global small and mid-cap funds dropped 0.85% in the week, but are still up 4.25% ytd.
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LatAm External Issuance to Decline
External bond issuance is likely to decline to below $12bn this year, according to Moody’s. The ratings agency says the financing needs of LatAm and Caribbean sovereigns will total an estimated $384bn in 2011, down from $410bn in 2010. Sovereigns will need to finance an average of 5.8% of GDP in 2011, down from 9.2% in 2009. The decline is mainly due to an increase in nominal GDP, and Moody’s expects continued economic growth and moderate fiscal results, which bodes well for future levels of financing requirements. The ratings agency says domestic funding by governments continues to rise. In 2011, the rating agency estimates that only 6.2% of funding needs in its sample will be sourced externally, down from 9.8% in 2009. External bond issuance is likely to be below $12bn this year, also on a declining trend. Mexico, has the largest 2011 funding needs at 11.1% of GDP, Peru has one of the lowest funding needs at only 0.5% of GDP.
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Mexico Leaves Rate Untouched
Mexico’s central bank left its rate unchanged at 4.50%, as expected by the market. “The post-meeting communiqué remains neutral and we reiterate our call that the first rate hike will be in Q1 2012,” says Nomura. Goldman Sachs meanwhile says that “as the output gap shifts to above neutral by mid-year and base effects raise the yoy inflation rate from mid-2011 onward, we believe that Banxico will initiate a tightening cycle in October, raising the rate 4 times by 25bp per meeting to 5.5% in March. Thereafter, Banxico will keep the rate unchanged at 5.5%.”
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Mexico Rate Seen Unchanged
According to market consensus, Mexico’s central bank should leave its rate unchanged at 4.50% today. “While the central bank is likely to acknowledge the large and encouraging drop in inflation rates, it will probably also reiterate that the rapid tightening of the output gap and upside risks from commodity prices are the main reasons why it has to remain vigilant,” says Goldman Sachs. Bank of America Merrill Lynch says that in March inflation came in at 0.19%, below market expectations, leading to a substantial decline in annual inflation to 3.04%.
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Chile Tightens Rate
As expected by market consensus, Chile’s central bank increased its rate by 50bp to 4.50%. It cites the increase in oil and food prices globally and a positive trend in local demand and employment as reasons for the hike. Nomura believes the bank will hike another 50bp in May and 25bp in June. Bulltick expects the bank to increase the rate to 5.50% by the end of the year to combat the rise in inflation.
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Daimler Prices MXP Bonds
Daimler Mexico has issued MXP500m in 3-year bonds, after receiving 1.4x demand, says a banker on the deal. The bonds priced at TIIE plus 34bp, tight to guidance of 35bp, he adds. The transaction came tight to last week’s issuance by Mexico’s Volkswagen Leasing, which sold MXP2bn in 3-year bonds at TIIE plus 40bp. An investor says that the smaller size of the issuance and the fact that it was done at the holding company level were the main reasons for the tighter spread. The bonds were bought by investment funds, private banks and some pension funds. The issuance had been pushed back a week because of a delay in the documentation process, adds the banker. The proceeds will be used for general corporate purposes. Santander managed the sale, rated AAA on a national scale. Daimler last came to market in November last year, when it issued MXP750m in 2-year bonds.