Brazil's Public Debt Rises 2.5% In June, Interest Rates Keep Soaring

• Brazil's federal public debt grew 2.51% in June relative to May, and the average cost of domestic debt issuance kept soaring amid greater risk aversion.
• The debt stock reached 5.846Trn reais ($1.10Trn), mainly driven by the increase of 76Bn reais in interest amid higher debt servicing costs, while the net issuance of domestic debt reached 67.3Bn reais, its lowest value for the month since 2018.
• According to the National Treasury of Brazil, the average interest rate on the domestic federal debt rose to 12.0% from 11.69% in May, its highest level since May 2017, owing to higher interest rates. The central bank has already raised its benchmark interest rate to 13.25% from a 2% record-low in March last year, penciling in another hike for August 3 to curb inflation.
• In addition to the troubled external environment marked by fears of recession and monetary tightening in major economies, the increase in risk levels came after Congress cracked open a constitutional spending cap to allow a burst of election-year expenditures.
• Despite the situation, the Treasury stressed that its liquidity reserve rose to 1.221Trn reais ($230.80Bn) in June, having been fueled throughout the semester by central bank results from last year, untying of resources from public funds and additional dividends from the Brazilian Development Bank (BNDES). Such events totaled 139Bn reais, exceeding the financial effect of lower emissions due to market volatility.

(Source: Reuters)