Brazil’s currency outlook may be brighter than politics suggest

Disappointment over the progress of an ambitious reform agenda by Brazil’s new President Michel Temer will probably be insufficient to cause another massive fall in the currency, even though it could rekindle market volatility and kill chances of any credit rating upgrades, a Reuters poll suggested on Thursday.

The daunting task ahead of Temer is no secret to anybody. With popularity rates nearly as low as former President Dilma Rousseff, and seen by many Brazilians as the product of a coup, Temer has vowed to approve pension and labor reforms and freeze government spending growth for 20 years.

There are “significant hurdles” for that agenda to be implemented, ratings agency Moody’s said today, in an apparent understatement of the challenges in dealing with a fragmented Congress with just two years to go before the next elections.

However, currency strategists polled by Reuters are increasingly convinced the Brazilian real is still likely to hold ground in coming months, or even add to its 20-percent gains so far this year against the U.S. dollar.

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