BRASÍLIA (Reuters) – Consolidated public sector spending on interest jumped to 45.119 billion reais, compared to 5.838 billion reais in the same month last year, reflecting the weight on government accounts of variables such as higher inflation and Selic .
This was the worst data for the month since July 2015, when nominal interest reached 62.753 billion reais.
According to the Central Bank, the data was also influenced by the unfavorable result with exchange swap operations in the period: the loss was 8.9 billion reais in July this year, against a gain of 16.3 billion reais in the same period of 2020.
With swaps, the BC offers protection to market agents against exchange rate volatility. When the dollar falls against the real, the BC is a winner, and when the US currency rises, the BC loses.
In July, the advance of the dollar was influenced by fears about the Executive’s commitment to the sustainability of public accounts, amid assessments that the attempt to reduce the precatory bill for 2022 would come loaded with electoral intentions to finance more expenses in presidential race year.
At a press conference, the head of the BC’s Statistics department, Fernando Rocha, pointed out that, excluding the effect of swaps, the nominal interest account would still have grown 14.1 billion reais in July compared to a year earlier, impacted by the increase in the nominal stock of public debt and by the rise in the Selic and IPCA, the two main debt indexes.
Given the advance in prices in the economy, driven by factors such as the increase in electricity and the price of commodities, the BC has already raised the basic interest rate to 5.25% per year, compared to a historic low of 2% at the beginning of the year . And there are signs of further tightening ahead to anchor inflation expectations, which have moved away from the targets set by the government.
Market agents already predict an IPCA of 7.27% this year and 3.95% next year, according to the latest Focus bulletin, with targets being 3.75% and 3.50%, respectively, in both cases with a tolerance margin of 1.5 points more or less.
The BC also disclosed this Tuesday that the Brazilian consolidated public sector had a primary deficit of 10.283 billion reais in July, with the gap in 12 months passing to 2.89% of the Gross Domestic Product (GDP). In a Reuters survey, the expectation was for a smaller deficit for the month, of 6.65 billion reais. In July of last year, the deficit was 81.071 billion reais, boosted by expenditures linked to facing the Covid-19 crisis.
This time, the gap came from a primary deficit of 16.842 billion reais from the central government and 786 million reais from federal state companies, while regional governments had a surplus of 7.345 billion reais. In July, the gross public debt was 83.8% of GDP, against 83.9% in June. The net debt, in turn, fell to 60.3% of GDP, compared to 60.8% in the previous month, mainly influenced by the increase in nominal GDP, pointed out the BC.
Market expectations, according to a Reuters survey, were for gross debt of 83.7% and net debt of 60.6% of GDP.
(By Marcela Ayres)
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