The Brazilian real tumbled more than 2%, leading losses among emerging market peers, after Lula said on the sidelines of the COP27 climate conference in Egypt that the government needs to start talking about “social responsibility rather than fiscal responsibility.”
The real weakened as much as 2.3%, breaching the 5.50-per-dollar level. The benchmark Ibovespa equity index slumped 2.2%, while swap rates rose across the curve, with long-end contracts gaining over 50 basis points.“Too bad,” he said, adding that markets fall “not because of serious people, but because of speculators”The central bank forecast that above-cap expenditures of 175 billion reais would increase the central government’s primary deficit to 1.
Investors, fearing that spending will fuel inflation, now price in that the central bank will no longer be able to lower interest rates next year. Some even fear that policymakers may need to resume an aggressive monetary tightening cycle that has already lifted the benchmark Selic to 13.75% this year.