Stress from companies, a cold economy and faith in Haddad give relief to interest rates – 03/08/2023 – Vinicius Torres Freire

In addition to rumors and fears, more signs appear that the so-called credit crisis in the Brazilian economy goes beyond the problems caused by a strong and lasting rise in the basic interest rate and the tightening of bank credit. Fraud in Americanas and debt crunches from other big companies dried up the market in February.

This funding drought news and the signs of a cooling economy contribute to bringing down the still very high wholesale interest rates in the money market. In the middle of the week, market rates began to indicate that a cut in the Selic, the “BC rate”, is expected before September. It’s a big change compared to the turn of the month.

In February, there was an ugly drop in the amount of money companies raise in the capital markets. That is, raising money through fixed-income securities, selling new shares and “hybrids”. In simple terms, “fixed income borrowing” means borrowing money by selling bonds.

“In February, capital market funding was R$ 13 billion, which corresponds to a 51.2% drop compared to the previous month. The result represents the lowest monthly volume since May 2020”, says a note by Anbima (Brazilian Association of Financial and Capital Market Entities), which regularly surveys these markets. Compared to February 2022, the decline was 73%.

You might want to sugarcoat this a bit by saying that the total amount of funding is volatile (they vary quite a bit from month to month). In comparison with older periods, such as 2020, the fact that the market for selling new shares (IPOs and “follow ons”) has been almost stopped since the beginning of 2022 — it was not because of the “credit crisis”. They are derisory mitigating factors. In February, at least, things were ugly.

Consider the case of fixed income, which is the bulk of the capital market (on average, 76% of the total value of funding from 2016 to 2022). In February, companies took out R$11.2 billion in loans through this means. In January, it had been R$ 23.4 billion. In February last year, R$ 36 billion. In the monthly average of 2022, BRL 38 billion.

Something has happened, it’s easy to see.

Even for companies that are able to go to more money markets, banks and capital markets, doors are closed or prices are prohibitive. Perhaps it is not obvious to remember that companies go to the market not only to raise funds for business expansion, but to roll over debts or adapt their deadlines and costs. Those who had water through their nose may have (more) problems.

It may be that the fog over the future of the economic policy of the Lula 3 government has contributed to this financial tightening. But said uncertainty was already wide open in November or December.

In short, the Americanas fraud and other corporate bankruptcy filings raised the somewhat obvious warning that high interest rates in a very low-growth economy are a problem. And?

Stress in companies, an economic cold in sight and a certain “faith” in Fernando Haddad’s fiscal package have brought down one-year interest rates, which this Wednesday (8) fell below 13%. For terms of two years or more, they are still higher than those registered in early November, when Lula’s speeches against the Central Bank’s spending and interest limits began. Still, something has changed.

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