An even more adverse scenario

CAUSE: The recent pressure on the exchange rate in Brazil can be attributed to two main factors: fiscal uncertainty and the worsening of economic expectations captured by the Focus report. The lack of clarity regarding the balance of public accounts, especially in light of discussions about increased spending and difficulties in implementing fiscal reforms, has generated distrust among investors. Furthermore, the Focus report, which reflects market expectations for indicators such as inflation, GDP, and interest rates, has shown successive downward revisions, increasing concerns about the country's economic recovery capacity. This environment of uncertainty leads to lower foreign capital inflows and a greater demand for protection in dollars, putting pressure on the Brazilian currency and other emerging market currencies.

CONSEQUENCE: The consequences of this scenario for Brazilian assets and economic variables are significant. A weaker real increases the cost of imports, putting pressure on inflation and requiring a more cautious stance from the Central Bank in conducting monetary policy – the Central Bank raised the Selic rate by 100 basis points last week, remember? In the financial market, there is greater volatility in stock prices, as well as an increase in risk premiums. For the real economy, uncertainty and an unfavorable exchange rate can inhibit investment and hinder sustainable growth, while higher interest rates make credit more expensive, restricting consumption and economic dynamism. We continue trying to keep all these plates spinning!

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