Emerging Markets Rates and Currencies Handbook

BRL is a restricted currency with convertibility regulated by the Bacen. With very few exceptions for companies in specific industries, in general, only BRL accounts are allowed in Brazil, but Brazilian companies are allowed to have offshore accounts. Interest Rate The local BRL interest rate which indexes the government floating debt is the “SELIC” rate. The interest rates settled in the transactions performed through the SELIC — mainly repurchases agreements (repos) — are influenced by the Bacen’s management of the interbank liquidity via open market operations (OMO). The SELIC transactions’ weighted average interest rate is called the ‘over SELIC’ interest rate, which stands as a representative of the cost of interbanking funding and, ultimately, the benchmark for the prevailing interest rates in the Brazilian economy. Accordingly, the Bacen's OMO are executed for monetary policy purposes, in order to keep the ‘over SELIC’ close to the target (which is greatly driven by inflation controls) for the SELIC interest rate defined, every 45 days, by the Bacen's Monetary Policy Committee (“Comitê de Política Monetária” - Copom). The market benchmark rate is the interbank overnight interest rate, the “CDI” (“Certificado de Depósito Interbancário”) which keeps a very close relation to the SELIC (nowadays there are no premium between them). CDI is published daily by B3, the central securities depository. The local BRL interest rates are calculated on exponential business days basis: • Tenor (Business Days): 122, BRL Rate (exp/252): 2,11%, Interest Rate Factor: 1,01016, Tenor (Counting Days): 181, BRL Rate (exp/360): 2,03%, Interest Rate Factor: 1,01016. • Tenor (Business Days): 247, BRL Rate (exp/252): 2,85%, Interest Rate Factor: 1,028 , Tenor (Counting Days): 360, BRL Rate (exp/360): 2,80%, Interest Rate Factor: 1,028. The fact that the BRL is not a free convertible currency and local transactions are indexed and not denominated in USD, originated the local USD interest rate curve (the “cupon curve”). The local USD interest rate curve follows local and international drivers such as: • The movements of the international USD curves. • The government issuance of USD indexed bonds and derivatives. • Corporates’ demand for hedge. • Brazilian country risk perception.