Friday, October 21, 2016

DBRS comfortable since that interest does not outweigh the 4% – the Observer

The agency rating DBRS is attentive to the evolution of the debt interest on the market, and says, in a telephone interview with the Observer, which is "comfortable with rates up to 3.5% or 4%". Minutes after the disclosure of the agency’s decision to keep the rating above the "garbage" and the perspective in the "stable" – DBRS gave a little more details in relation to risks which may cause it to fall to the rating in the future. The scrutiny of the markets, even though the purchases of the ECB, will be crucial.

In the report released this Friday, the agency of rating DBRS points to the evolution of interest rates as an important element to your analysis. Already in February, when an apparent conflict between Brussels and the government took the interest to 10 years for the region of 4.5%, the agency began to show their concern with the impact of financing costs such as those for the trajectory of Portugal’s debt (that is, the ability to issue new debt at a lower cost-to-go, by gradually reducing the annual invoice for the total with interest).

interest rates fell to the region of 3,14%, in the term of reference of 10 years, but in the last weeks rose up to 3.6 percent, before becoming more clear that the agency would not cut the rating on this day-October 21.

In a phone conversation with the Observer, Nichola James, associate director of the ratings sovereign of the DBRS, he explained, also, a little bit better what the agency wants to say with the reversals of the policies undertaken by the troika and by the previous government. "The major reversal that we worried about was the change in the partial sale of TAP," says Nichola James. The government has backtracked on the sale of 51% of the TAP, getting the agreement with the private to a 50-50 split in the share capital of the airline.

Less concern, in the eyes of the DBRS, caused, for example, the return in the fastest of the salaries of the Public Function — that has earned criticism from the opposition parties. "We’re not especially concerned about this because this pertains to the dynamic of the austerity/growth".

THE DBRS says that they do not want to make policy recommendations, but Nichola James says that, in his opinion, the government must maintain a discipline is too rigid in budgetary terms because there may be unforeseen events that threaten the stability of public accounts. In addition, DBRS is aware of the policies of the government in the field of court services, in particular in the law on the insolvency business, whose flexibility and speed could help unclog the balance sheets of the banks.

The agency rating, which took into consideration the proposal of the State Budget for 2017, presented on Friday, noted that there are measures that are non-recurring which will help to balance the public accounts. An example? The 450 million euros in dividends paid by the Bank of Portugal, almost the triple of last year. "we liked, much more, see measures for more permanent [on the side of reduction of expenditure]".

However, "the government is, clearly, trying that the deficit be below 3% next year", says the agency of rating. The DBRS will continue "vigilant", especially because the agency hesitate to say "confident" that the economic growth will not dececionar in 2017.

On the political scene, with the DBRS to say in the report that it fears that the government mark a step in the reforms to be dependent on parties to their left, Nichola James said he was "surprised" by the way, the government has endured, contrary to their expectations. "We have been surprised with the stability of the government, when compared to what we thought six months ago, for example." This "stability" amazing, in the eyes of the agency, make this now have, as its central scenario, that there will be the emergence of a new political scenario in the coming times.


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