28 Jun 2013
Flash: Brazil is in flux with room for optimism - BBH
Fxstreet.com (Barcelona) - Brown Brothers Harriman analysts see that Brazil is in flux and there is some room to be optimistic.
They see that the repercussions from the protests in Brazil could prove to be more meaningful than many observers initially thought. They feel that they will likely have some impact on (1) fiscal policy, (2) monetary policy, (3) potential cabinet reshuffle, and (4) possibly the outcome of the 2014 presidential elections.
Looking at fiscal responsibility as the first point in Dilma’s “Five Pacts” was a welcome surprise and the teams concern is the government’s definition of “fiscal responsibility.” They write, “We believe that the protests gave the administration a greater sense of urgency about fighting inflation, which will grant the central bank more degrees of freedom to act.” On the BRL front, they note that the government removed the reserve requirement on short FX positions. The requirement was 60% for positions above $3 bln, and the Dilma administration has also floated the idea of taking coordinated action together with the BRICs countries to deal with the USD appreciation.
They see that the repercussions from the protests in Brazil could prove to be more meaningful than many observers initially thought. They feel that they will likely have some impact on (1) fiscal policy, (2) monetary policy, (3) potential cabinet reshuffle, and (4) possibly the outcome of the 2014 presidential elections.
Looking at fiscal responsibility as the first point in Dilma’s “Five Pacts” was a welcome surprise and the teams concern is the government’s definition of “fiscal responsibility.” They write, “We believe that the protests gave the administration a greater sense of urgency about fighting inflation, which will grant the central bank more degrees of freedom to act.” On the BRL front, they note that the government removed the reserve requirement on short FX positions. The requirement was 60% for positions above $3 bln, and the Dilma administration has also floated the idea of taking coordinated action together with the BRICs countries to deal with the USD appreciation.