Brazil Lowers Interest Rate

As we were expecting, the Brazilian Central Bank decided to cut 100 basis points yesterday to 10.25% per year. After the decision, Brazil is no longer the world champion of real interest rates. China is now the number one in real interest rates with 6.6% p.y., Hungary is in the second position with 6.4% p.y. and Brazil is now in the third position with 5.8% p.y.

Even though Brazil is not the real interest rates world champion anymore, we still believe there is room for further cuts in the near future. Thus we maintain our 9% per year assumption for December 2009.

As we wrote yesterday we still favor domestic focused companies like Vivo (VIV - Snapshot Report), Tim Participacoes (TSU - Analyst Report), Grupo Ultra (UGP - Analyst Report) and Gafisa (GFA - Analyst Report). I would also add AmBev (ABV - Analyst Report) to this list as the company has a huge exposure to the Brazilian domestic market.