Bloomberg — Robert Gibbins, the founder and chief investment officer of hedge fund Autonomy Capital, joined a chorus of investors and politicians criticizing Brazil’s monetary policy.
The central bank’s strategy has been “counterproductive,” adding another hurdle to production “in an already supply constrained economy,” Gibbings said in an emailed response to questions. President Luiz Inacio Lula da Silva, meanwhile, is unlikely to have a successful term unless the fiscal scenario is addressed to fix public expenditure that’s both “high and very ineffective,” he said.
“At some point soon, when the BCB wakes up to the mess, it is likely to panic,” Gibbins said of the Brazilian central bank, which he says cut rates too far and then overcompensated with hikes. “This doesn’t mean the focus on fiscal is wrong. It means that even though the fiscal isn’t good, the monetary policy is still wrong for the economy.”
Earlier this week, Gibbins took to Twitter to criticize the nation’s central bank for creating a “credit mess.”
The central bank declined to comment on the criticism.
The collapse of retailer Americanas SA in January brought Brazil’s corporate credit market to a halt, with several local bond sales being postponed and domestic banks reviewing their loan books. Companies including retailer Marisa Lojas SA and utility Light SA hired advisers to restructure debt as they grapple with high borrowing costs, a tepid economy and rising delinquency rates.
The criticism from the investor, who was stung by some ill-timed bets in Latin America in recent years, echoes that of Brazil Finance Minister Fernando Haddad. The economy chief recently called the country’s rates exaggerated and said the central bank doesn’t seem to fully grasp the current credit situation.
Policymakers in Latin America’s largest economy led an aggressive monetary tightening campaign that hiked interest rates to 13.75% from an all-time-low of 2% in less than 18 months to tame inflation. So far, they’ve bucked growing pressure to lower rates — markets price in cuts starting in June.
Gibbins, a former bond trader at Lehman Brothers Holdings Inc., saw his flagship macro hedge fund post disappointing returns in the past few years after some Latin American wagers soured. Failing to acknowledge the extent of inflationary surprises amid former Brazil President Jair Bolsonaro’s spending push in 2021 helped drive the worst annual slump for the fund since the global financial crisis.
Assets at London-based Autonomy peaked at about $6.3 billion in 2019 and declined to $1.5 billion around the end of 2021, Bloomberg reported at the time. Gibbins did not respond to questions about more recent AUM data.
Analysts in a weekly central bank survey kept their inflation forecasts for next year and beyond unchanged after Lula’s government presented a highly-anticipated fiscal rule proposal. The plan is seen as crucial to win over investors, who have been worried about the health of the country’s public finances — concerns which have helped fuel inflation expectations, which in turn has kept borrowing costs high.
Earlier this week, central bank chief Roberto Campos Neto said the new fiscal framework proposed by Lula’s economic team was “super positive” and removes concerns of a “disorganized” trajectory for the country’s debt. While he acknowledged Brazil is facing a slowdown in financing operations, Campos Neto said the country is not on the brink of a structural credit crisis.
--With assistance from Donal Griffin and Maria Eloisa Capurro
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