The recent Selic rate cut by Banco Central do Brasil will benefit non-financial companies across various sectors, which are now more likely to access funding without bank intermediation, Moody's said in a report Aug. 2.
On July 31, Brazil's central bank cut its benchmark Selic rate by 50 basis points to 6.00%, citing expectations for a slower economic recovery for the Latin American country.
According to Moody's, the move will support investment and economic growth, as the reduction in interest rates will have a positive impact on debt dynamics. And as the Selic rate is expected to continue to drop to 5.5%, the fiscal consolidation required to stabilize the debt burden will be alleviated.
Furthermore, the rate cut will help expand capital markets and increase liquidity, the report said. Financing options will be broadened by the lower costs and debt issuances are likely to continue to expand.
"Brazilian companies pay substantially more interest on their debt than their global counterparts; therefore, the ongoing shifts in funding costs and conditions should help to improve their profitability," Moody's said.
According to the rating agency, interest-rate sensitive sectors including utilities and infrastructure would also profit from the rate cuts because it will help facilitate refinancing.
Moreover, "the rate cut will also be positive for consumer loan securitizations both in terms of credit quality and performance," Moody's said, adding that lower rates promote loan origination demand, decreasing pressure on lenders to loosen underwriting.