High interest rates do not deter long-term investment in Brazil, says expert

the scenario of fees high abroad, especially in United States has not been enough to stave off long-term foreign investments in Brazil, in the assessment of Inter’s chief economist Rafaela Vitoria.

In an interview with CNN this Wednesday (21), she highlighted that investments short-term, linked to the financial market with the purchase of bonds and shares, are harmed by high interest rates in the United States, with a tendency to migrate from emerging markets, considered more risky, to North American fixed income, which becomes more attractive .

“We see a flow of investors leaving risky assets, from emerging countries, whose risk has had a small increase in recent weeks”, observes the economist.

However, long-term investments, linked to projects, infrastructure and other expansions, held, as it takes into account economic prospects, not just interest rates.

She states that “we have seen an increase in foreign investment in Brazil this year, with an inflow of around US$ 60 billion, in addition to an increase in private domestic investment. We have a better economic outlook scenario, with an improving job market, regulatory frameworks, so it is a counterpoint to this high interest rate that you see in the United States, which pulls this short-term investor”.

This Wednesday, the Federal Reserve should raise interest rates again by 0.75 percentage point. Vitoria assesses that the inflationary process in the country “is not yet under control”.

“The latest consumer inflation data indicated that inflation, mainly measured by the cores, services, linked to housing, remains very high, and there is indeed a concern about its persistence, and therefore the Fed needs to continue raising interest rates” .

In the case of Brazil, there is a “moment of deflation” linked to the reduction of taxes in July and the fall in fuel and food prices in August and September following the decline in commodity prices. The deceleration, in the economist’s view, has been greater than expected by the market and the Central Bank.

“This is positive news, it tends to reduce inflationary inertia for 2023, but it is in a scenario still with uncertainties for the fiscal issue next year. The Budget has not yet been approved, there are pressures to have more spending, including to review the ceiling, an important fiscal anchor”, says the economist.

With a moment of uncertainty, she hopes the central bank communicate to the market that it will keep the interest rate high for a “good time”, to ensure that the inflation will converge to the target.

“The work of the Central Bank is not yet completed, it does not need a new interest rate hike, but it needs to dose in the communiqué a market expectation that interest rates will need to be restrictive for a long time, and it remains dependent on what will come from fiscal for 2023”, he highlights.