Brazil Capital Report

Central Bank Raises Selic Rate A Quarter Point to 11.25%

BCR Staff — Wed, 29 Oct 2014 23:59:07 +0000

Brazil’s central bank raised the country’s base Selic interest rate a quarter-percentage point Wednesday to 11.25% in a move to rein in accelerating inflation. The move came as a surprise to most observers in markets, who by and large were expecting the bank to hold the rate steady at 11%. In a statement, the central bank’s monetary policy committee said that “adjustments in relative prices had made the balance of risks for inflation less favorable,” and that the rate hike would assure a more “benign” scenario for inflation in 2013 and 2014. Brazil’s IPCA consumer price index inflation ran at 6.75% in the 12 months through September, above the 6.5% upper limit of the country’s annual inflation target band. According to recent market forecasts, IPCA inflation is seen ending the year around 6.45%. Accelerated inflation has continued in Brazil’s economy in reaction to loose fiscal policy and recent weakening of the country’s currency, the real. The move to raise the country’s interest rate, meanwhile, came only days after Brazilian president Dilma Rousseff won re-election to a second four year-term in a runoff vote against opposition challenger Aécio Neves. The rate increase Wednesday represented a resumption of a rate tightening cycle that had been suspended in April ahead of the country’s election campaign season. During the campaign, Ms. Rousseff rejected calls by opposition parties to grant full autonomy to the nation’s central bank, saying such a move was unnecessary. Since the election, however, talk has surfaced that the government is considering establishing fixed term limits for central bank directors.

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Cutrale-Safra Buys Banana Producer Chiquita In $1.3 Bln Deal

BCR Staff — Mon, 27 Oct 2014 15:41:38 +0000

Agribusiness Cutrale and the Safra investment bank have made a successful bid to buy North Carolina-based banana producer Chiquita in a deal valued at $1.3 billion, the companies said. Under an agreement approved by the Chiquita board of directors, Cutrale-Safra will acquire all outstanding common shares of Chiquita for $14.50 per share. The companies said the deal will involve a $680 million cash payment and Cutrale-Safra’s takeover of Chiquita’s outstanding debt. The deal came after Chiquita shareholders rejected an effort by the company to merge with Irish produce company Fyffe. Chiquita was founded in the 1870s with banana farming operations in Jamaica and Costa Rica, and currently employs 320 workers at its headquarters in Charlotte. Cutrale currently holds orange juice production and processing operations in Brazil and in Florida.

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PMDB Party Widens Control Of State Governments

BCR Staff — Mon, 27 Oct 2014 15:15:10 +0000

The government-allied Democratic Movement Party, or PMDB, widened its control of state governments in the latest election, taking 7 of 27 state posts. The party previously held 5 state governments. The governing Workers’s Party, or PT, meanwhile, held on to 5 state governor’s seats, while states controlled by the opposition Social Democratic Party, or PSDB, fell to 5 from 8. The PMDB made its strongest advance in Rio de Janeiro, Espirito Santo, and the southern state of Rio Grande do Sul. The PT, meanwhile, captured the key states of Minas Gerais and Bahia. The PSDB once again held on to strong control in Brazil’s most populous and industrialized state of São Paulo and secured the central western grain producing states of Goias and Mato Grosso do Sul. Smaller parties also made a strong advance in the latest elections, increasing their control to 7 states from 3 previously. Most of those states, however, are in the less populated Amazon region in the north of the country. The state victories of the PT and its ally the PMDB, meanwhile, should benefit the government of president Dilma Rousseff, who was re-elected to a second four-year term Sunday with 51% of the vote.

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Dilma Rousseff Wins Re-election With 51.5% Of Vote

BCR Staff — Sun, 26 Oct 2014 22:51:06 +0000

Incumbent President Dilma Rousseff of the Workers’ Party defeated Social Democratic Party challenger Aécio Neves in a runoff vote Sunday to gain re-election for a second 4-year term. With more than 99% of ballots counted, Ms. Rousseff had 51.5% of the vote versus 48.5% for Mr. Neves. The vote brought to an end three months of election campaigns marked by the death of one of the key candidates in the race, and sharp reversals in voting preferences shown in polls. Ms. Rousseff, a former combatant against Brazil’s military regime, rose to office as the protege of former Brazilian president Luiz Inácio Lula da Silva. Mr. Neves, a senator and former governor, took strong support in Brazil’s most populous and industrialized state of São Paulo, but lost to Ms. Rousseff in his home state of Minas Gerais, where a victory was deemed critical. Ms. Rousseff, meanwhile, took strong support in Rio de Janeiro and the large northeastern region of the country. With the victory, Ms. Rousseff will inaugurate the fourth consecutive term of the country’s Workers’s Party government. This year’s presidential campaign took a roller coaster path, with the death of presidential challenger Eduardo Campos in a plane accident in August. Mr. Campos. of the Socialist Party was substituted by his vice-presidential running mate, high-profile environmentalist candidate Marina Silva. Ms. Silva, however, came in third place in a first round election on Oct. 5, and subsequently endorsed Mr. Neves campaign. Mr. Neves began the second round campaign in a leading position in polls, but that was undermined throughout the month by a negative ad campaign run by Ms. Rousseff. Despite staging a late comeback to achieve victory, analysts said Ms. Rousseff was not left in a strong position to govern as the election was won by the closest margin since Brazil returned to a democratic regime in 1989. With her return to the job, Ms. Rousseff will now be faced with the task of bringing together a strongly divided electorate and congress, and returning the country to a path of growth. Brazil’s economy in the second quarter dipped into a recession amid slow economic activity, elevated interest rates, and inflation that has topped the 6.5% upper limit of the country’s annual inflation targeting band.

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Polls Show Still Tight Race Ahead Of Sunday’s Vote

BCR Staff — Sun, 26 Oct 2014 01:12:55 +0000

The latest polls ahead of a runoff presidential vote Sunday showed a tight race, with incumbent Dilma Rousseff still holding a slight lead over challenger Aécio Neves. Major polling institutes Datafolha and Ibope continued to show an advantage for Ms. Rousseff, of the Workers’s Party, but support for Mr. Neves, of the opposition Social Democratic Party, was showing a last-minute advance. A poll from Datafolha projected Ms. Rousseff with 52% of the valid vote versus 48% for Mr. Neves. At the same time, an Ibope poll estimated Ms. Rousseff with support from 53%, versus 47% for Mr. Neves. Both institutes, however, showed that support for Mr. Neves had grown from previous surveys, while support for Ms. Rousseff stayed unchanged. Meanwhile, a poll from the Sensus insitute showed Mr. Neves leading by 52% to 48% and a poll from the MDA institute showed the two candidates tied with 50% each. The candidacy of Mr. Neves, who held a lead in polls early in the race, appeared to gain a boost ahead of the election this week with a well-evaluated performance in televised debates against Ms. Rousseff. Ms. Rousseff’s campaign was also hurt by last-minute allegations published in the Veja weekly news magazine that her government had conncetions to alleged corruption at state-run oil company Petrobras. Ms. Rousseff denied the allegations. Ms. Rousseff won a first-round election against Mr. Neves on Oct. 5 by a tally of 42% to 34%.

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Moody’s Downgrades Petrobras’ Rating Citing Leveraging

BCR Staff — Wed, 22 Oct 2014 00:57:26 +0000

Credit ratings agency Moody’s Tuesday cut its global and local ratings for state-owned oil company Petrobras, citing elevated leveraging by the company. Moody’s lowered its rating for the company to Baa2 from Baa1 and maintained a negative outlook. The agency said Petrobras has been negatively affected by declining oil prices, heavy investment commitments and a weakened local currency and said it didn’t believe the company would be able to reduce leveraging to cover costs until after 2016. “In the long-term, however, there could be an increase in the rating if there is a reduction of leveraging and an increase in profitable production and oil reserves, in conjunction with a higher sovereign rating,” the agency said. Petrobras has recently made heavy investments to develop Brazil’s offshore oil reserves in the so-called pre-salt area off the country’s Southeast coast. The heavy investment has coincided with a global decline in oil prices.

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Inflation Accelerates In Mid-October On Food, Personal Costs

BCR Staff — Tue, 21 Oct 2014 15:44:06 +0000

Brazil’s IPCA consumer price index accelerated in mid-October as food and other personal costs rose early in the month, the IBGE statistics institute reported. The IBGE said its IPCA-15 inflation measurement accelerated 0.48% in the period, from a 0.39% advance seen through mid September. With the latest reading, 12-month inflation has reached 6.62%, topping the 6.5% upper limit of the government’s official inflation targeting band. The IBGE reported that food costs accelerated to 0.69% during the month from 0.28% through mid-September, while clothing rose to 0.70% from 0.17% and housing costs increase to 0.80% from 0.70%. Transportation and education costs, however, both declined in the period. According to the latest central bank weekly market survey, Brazil’s IPCA inflation is seen ending 2014 at 6.45% and declining slightly to 6.30% in 2015. Brazil’s central bank raised the country’s base Selic interest rate by more than 3 percentage points to 11% last year in an effort to curb inflation, but halted the rate tightening cycle in March ahead of the start of the country’s presidential election campaigns. Brazilian voters are scheduled to vote in a runoff election between incumbent president Dilma Rousseff and challenger Aécio Neves on Oct. 26.

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Rousseff Admits Funds Were Diverted From Petrobras

BCR Staff — Sun, 19 Oct 2014 21:42:15 +0000

Funds were diverted from Brazil’s state-run oil company Petrobras for political campaigns, and the government will do all possible to see them repaid, President Dilma Rousseff said Sunday. Speaking at a press conference, Ms. Rousseff for the first time admitted that a scheme recently revealed by former Petrobras Director Paulo Roberto da Costa in testimony to police actually occurred. “I will do all possible to reimburse the country. If there was a diversion of public money from Petrobras, we want it back,” adding, “‘If there was, no;’ there was.” According to recent revelations by Mr. Costa leaked to the local press, as much as R$10 million wsa diverted from the company to pay for political campaigns of Ms. Rousseff’s governing Workers’ Party, as will as the allied Democratic Movement Party and Brazilian Labor Party. The leaks also suggested money went to former opposition Social Democracy Party leader Sergio Guerra, and Ms. Rousseff’s former chief of staff, Gleisi Hoffman. Ms. Rousseff did not confirm how much might have been diverted from the company, which has recently come under investigation by the U.S. Securities and Exchange Commission. The latest admission comes only one week before Ms. Rousseff is due to face opposition challenger Aécio Neves for re-election in a nationwide runoff vote. According to recent polls, Ms.Rousseff trails Mr. Neves, of the Social Democratic Party, by a margin of about two percentage points.

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Report: Former Rousseff Aide Got R$1M Donation From Petrobras

BCR Staff — Sun, 19 Oct 2014 21:02:00 +0000

Former chief-of-staff for Brazilian President Dilma Rousseff, Gleisi Hoffman, received R$1 million for a senate campaign from state-run oil company Petrobras, the Estado de São Paulo newspaper reported. The revelation was reportedly made by former Petrobras Director Paulo Roberto da Costa in testimony to the police on a series of funds diverted from the company. Ms. Hoffman, who is wife of Communications Minister Paulo Bernardo, successfully campaigned for the senate in 2010 and later took leave from the post to serve as Ms. Rousseff’s chief-of-staff. The allegations are the latest in a series of revelations from Mr. Costa, who also recently pointed out alleged regular transfers of funds to governing Workers’s Party officials and also to former opposition Social Democratic Party President Sergio Guerra. Both Ms. Hoffman, and her husband Paulo Bernardo, denied having any connection to Mr. Costa. The revelations come less than one week ahead of Brazil’s upcoming Presidental election. According to the latest polls, Ms. Rousseff trails challenging opposition candidate Aécio Neves in voter support by about two percentage points.

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Economic Activity Advances 0.27% In August, 0.93% in 12 Mos

BCR Staff — Thu, 16 Oct 2014 13:08:14 +0000

Brazil’s economic activity advanced slightly in August after posting a strong gain the previous month, but remained less than 1% over 12 months, the central bank said. The bank reported the IBC-BR activity index rose 0.27% during the month after a 1.5% increase seen in July. With the latest result, the index has risen 0.93% over the past 12 months. For the year to date, however, activity has shown a contraction of 0.11%. The IBC-BR activity index serves as a monthly proxy for growth indicators, which are reported quarterly by the IBGE statistics institute. The latest data comes after the economy registered a 0.6% contraction in the second quarter of the year, putting the country into a technical recession. According to recent central bank market surveys, Brazil’s economy is seen growing by about 0.3% in 2014 after registering 2.3% growth last year. Brazil’s economy was seen showing more robust results this year with the country’s hosting of the World Cup in June and July, but economic activity slowed more than expected during that period.

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