Brazil is, in many ways, a study in contrasts. After contracting for eight consecutive quarters, the Brazilian economy has been on a growth trajectory for over a year amid rising commodity prices, a stronger labour market and other tailwinds.
This recovery began with a rally in the currency, the real, leading to cheaper imports and thereby helping to reduce inflation. Lower inflation has allowed the central bank to cut interest rates deeply over the past 18 months. Another reason rates have fallen sharply is the recent elimination of a generous government loan programme. Will investors be rewarded in Brazil? Brazil used to subsidise roughly 50% of the country's total credit via below-market-rate loans to large corporations. To finance the programme, the government itself had to borrow at lofty rates. The upshot?...
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