Brazil sees 2022 public debt as high as 6.4 tln reais, more floating rate debt

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Brazil's B3 Stock Exchange in Sao Paulo

BRASILIA -Brazil’s outstanding public debt is expected to increase this year to a range between 6 trillion reais and 6.4 trillion reais, a rise of up to 14% on last year’s 5.614 trillion reais ($1.03 trillion), the Treasury said on Wednesday.

Setting out its 2022 debt forecasts and financing plans, the Treasury said it aims to sell more floating rate debt, amid an aggressive monetary tightening cycle that is increasing official borrowing costs and making the bonds more attractive for investors.

Those bonds are linked to the official Selic interest rate, set by the central bank, and the Treasury expects them to represent between 38% and 42% of the total stock of debt this year, an increase from 36.8% in 2021.

Since last March, policymakers have raised the interest rate to 9.25% from 2% and have already signaled another 150 basis-point hike in February to combat double-digit inflation in Latin America’s largest economy.

The Treasury acknowledged that its long-term goal is to prioritize fixed-rate bonds and inflation-linked bonds. Still it stated that the increase in Selic-linked securities in 2022 will allow it to manage public debt maturity better.

It expects the average maturity of Brazil’s debt profile this year to reach between 3.8 and 4.2 years from 3.8 years in 2021, and for the share of debt maturing over the next 12 months to be between 19% and 23%, compared with 21% last year.

“Especially in a context of greater debt stock and its maturities, it is understood that it is more important to prioritize the convergence of these refinancing risk indicators to more comfortable levels, even if this leads to temporary deviations in the debt composition,” the Treasury said in a presentation.

In the long term, the government aims to reduce Selic-linked bonds to only 20% of the total stock.

($1 = 5.4359 reais)

(Reporting by Marcela AyresEditing by Marguerita Choy)