Brazil and Colombia - Brief Comment

According to the Central Bank of Brazil and its market expectations survey – Focus – the forecast for the 2009 went downwards from -0.3% to -0.44%. The consensus however did not change its forecasts for 2010, which remained the same and around 3.5%. A similar dynamics was seen for 2009 industrial production, down from -3.8% y/y to -4.1% y/y. It may be possible to see room for further revision on growth since we expect output to contract by -1% in 2009. On the inflation side, short-term inflation was revised up (May's IPCA up from 0.31% m/m to 0.35% m/m), pushing the 2009 IPCA up from 4.30% y/y to 4.36% y/y, while 2010 IPCA moved down modestly, 2bp, to 4.30% y/y. On the rates side, no changes comparing with the previous report that is by Dec'09 and Dec'10 Selic rate is estimate at 9.25% and 9.50% p.a., respectively. The exchange rate however remained at 2.20 by the end of this year.

Colombia and the IMF

While things in Brazil are extremely peaceful and the country is enjoying an inflow of capital due to the stable macro conditions and the profitable interest rates, the same cannot be said about Colombia. Indeed, the IMF approved a one year line of credit of USD 10.5bn, the equivalent of 900% of the country's quota at the IMF. According to the market, this fact makes Colombia the lowest rated sovereign thus far to have been given an FCL, and this sets a new floor for eligibility. Colombia argues that the loan is only for precautionary purposes.