By Gabriel Burin

BUENOS AIRES (Reuters) – The Brazilian real will continue to be supported by a surprisingly good fiscal performance in the southern hemisphere’s summer lull as the campaign for the October presidential election begins to gather pace, according to a Reuters poll.

It hovered around 5.60 per US dollar in the fourth quarter and is expected to continue to do so, with moderate market action during the summer holiday season, softening the blow from the greenback’s rise following the final minutes. warmongers from the Federal Reserve.

According to the median estimate of 21 foreign exchange strategists surveyed on January 4 and 5, the real is expected to strengthen 1.4% to 5.62 per dollar at the end of March against 5.70 on Thursday, as long as Brazil’s budget problems remain. under control.

The country’s public accounts swung to a small primary surplus in the 12 months through November, thanks to stronger-than-expected tax revenues and slower spending resulting from strict spending rules.

But investors fear the improvement will only be temporary after President Jair Bolsonaro’s administration changed the fiscal framework last year to gain fiscal leeway for social programs ahead of the vote.

Bolsonaro lags in election polls behind former President Luiz Inacio Lula da Silva, who has said he will seek to forge a wide range of alliances in a bid to unite a divided country.

“Having followed a positive trajectory since 2016 and during the pandemic, it appears that Brazil’s post-pandemic policy mix may be heading in the wrong direction,” said Padhraic Garvey, ING regional research manager, Americas.

“This can be categorized as a pre-election government seeking to find loopholes in the constitutional spending ceiling and worsening fiscal risk premiums forcing the central bank to even more aggressive rate hikes.”

Brazil’s central bank is leading the world’s most aggressive political tightening campaign. He raised the key rate to 9.25% from 2.0% in 2021 and this year maintains an orthodox vision to fight against still high inflation.

The real was forecast at 5.70 per dollar over 12 months, almost stable from its Thursday value of 5.70 and more solid than an expected 3.7% depreciation of the Mexican peso over the same period, to 21.3507 per dollar.

The weaker outlook for the Mexican currency is based on perceptions that its central bank’s rate hike cycle is still too moderate relative to other countries like Brazil, despite a larger-than-expected hike https: // www .reuters.com / markets / us / mexican-central -the-more-than-expected-rate-hikes-the-inflation-movement-2021-12-16 last month.

(For other articles from the January Reuters currency poll 🙂

(Report and poll by Gabriel Burin in Buenos Aires; additional poll by Anant Chandak, Sarupya Ganguly and Indradip Ghosh in BENGALURU; edited by Chizu Nomiyama)

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