Political Risk Latin America Blog @PolRiskLatam

Dilma’s battle for credibility

Posted in News and Articles, Political Risk by politicalrisklatam on February 18, 2011

by Jonathan Wheatley for Financial Times – Beyond Brics, February 18th, 2011.

Do investors in Brazil trust the government or not? If you look at fund flows, the answer is No. Investors took $1.48bn from Brazilian equity funds in the week to Wednesday and nearly $34m from Brazilian bond funds, according to EPFR, the fund tracker.

But look at interest rate futures in São Paulo and it’s a different story. Over the past few days they have fallen, suggesting the government has won some credibility for its promises to get tough on fiscal policy.

As this Bloomberg chart shows, interest rate futures (this is the January 2013 contract) have been moving up for some time as investors have got increasingly worried about inflation. Until last week, they were betting the central bank would be forced to raise its policy interest rate to nearly 13 per cent a year from the current 11.25 per cent. (continue reading… )

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