Brazil’s bad loans, inflation outlook brightening

Brazil’s president-elect Lula sent local financial markets into a tailspin late this week after he stressed the need for higher spending, reinforcing our concerns that the country’s public debt dynamics are likely to worsen. That added to an already bad week in Brazil’s markets, which saw bank stocks slump amid growing fears about the health of loan books. And the scale of the central bank’s rate hiking cycle means that bad loans are likely to rise further, weighing on growth. The good news for the region – and Brazil in particular – is that inflation pressures are showing further signs of easing.