Brazil's risk premium on yield curve 'exaggerated' over peers, says central bank chief
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BRASILIA, Oct 1 (Reuters) - Brazil's central bank chief said on Tuesday that the country's risk premium increase on its local yield curve seems "exaggerated" compared with peers, whose economies also are not generating primary surpluses.
Long-term interest rates have remained above 12% 0#DIJ: in Latin America's largest economy, where gross debt continues upward, reaching 78.5% of GDP in August, a 4.1 percentage point increase this year.
Many economists say rates above 12% for longer maturities are unsustainable.
"When I say that I look at Brazil's pricing and it seems a bit exaggerated, it's not due to distrust of the fiscal framework in Brazil. It's in comparison to other countries," said Roberto Campos Neto at an event hosted by Crescera Capital.
"Several countries also have weak primary balances and debt situations. Some countries saw even greater debt growth than Brazil during the pandemic, much greater."
He reiterated the need for a positive fiscal shock to allow the country to sustain lower interest rates.
"When we see the market starting to question the debt trajectory, it becomes much harder to maintain low interest rates, and the long-end of the yield curve rises quickly," he said.
Campos Neto stressed that the market has been signaling expectations for higher future inflation. He said the market has also been focused on fiscal transparency, noting the importance of the government's primary balance being seen as a genuine fiscal effort.
Recent government measures, considered controversial on how spending, tax exemptions, and new revenue are accounted for, have raised concerns among experts about the credibility of the country's new fiscal framework.
After the central bank began a tightening cycle in September, raising rates by 25 basis points to 10.75%, Campos Neto repeated that policymakers chose not to provide forward guidance, opting instead to remain data-dependent for their next decision.
Reporting by Marcela Ayres; Editing by David Gregorio
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