Benjamin Souza He is the Director of Fixed Income Strategy for Latin America Black stoneIt is the largest asset management company in the world.
The CEO, in an interview with Portfolio, assesses the impact of inflation and rising interest rates on fixed-income investments and loans.
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Will interest rates stop rising soon?
We had a period of low interest rates and that was a problem with investing. Inflation is more serious in some countries, and although in the US it is still at 6%, it is three times higher than the target. When it is higher, decisions will be more difficult for central banks.
Just as there was a race over who could raise prices faster, the race is now over who manages to control inflation. It will take time for some central banks to succeed, but everyone will have to take a break to assess what happened, the impact of the measures and how much they are affecting demand, to eventually start lowering them. On average, it’s been 12 months since they finished uploading and they haven’t finished uploading them.
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So the cost of money will be around for much longer?
This is why 2023 is the ideal fixed income scenario. We’ll stay there for a while. It will take some time yet. The reason is inflation. We will have to double-digit inflation, and I think the problem has not been solved, and we are not close to solving it.
Why did inflation rise?
For three reasons: China’s zero-sum policy, which caused commodity inflation due to the closure of cities and regions; The second reason is the Russian invasion of Ukraine, which distorted the prices of some commodities such as grain and fertilizers, and the third is local, which is demand with the recovery after the epidemic. The one that is solved is the first.
Unfortunately, we will all be left with more inflation and learn to live with it. No central bank can be content with double-digit inflation and has to pay. In the rest of the region, we will probably have to learn to deal with these inflations despite central bank targets and live near the ranges, perhaps at the top of them.
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The other side of the coin is credit, at high rates. Will debtors suffer here?
Unfortunately, the credit channel must be controlled, by influencing demand, so that it does not deteriorate. The cost of financing that generates frictions in the economy must be monitored. For the region, the recovery of China and the better result achieved by the United States will be positive.
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How well does pension reform work?
Across Latin America we are striving to create a sustainable system. The good thing is that there is a history of how this has been done in other countries, the important thing is to see that these savings are translated into investments that benefit the country, but at the end of the day you have to analyze how the system can be improved.
It is normal for countries to reform their pension systems. Savings are converted into investments for the development of countries in infrastructure, companies or government bonds.
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