Brazil's New Fiscal Plan Is Cautiously Welcomed by Markets
Comment of the Day

March 30 2023

Commentary by Eoin Treacy

Brazil's New Fiscal Plan Is Cautiously Welcomed by Markets

This article for Bloomberg may be of interest to subscribers. Here is a section: 

“The broad ideas are orthodox and the government does agree with the idea of stabilizing debt,” said Katrina Butt, a senior economist at AllianceBernstein LP. “Still, there are some unanswered questions and the government seems to bank on economic growth to be able to achieve the targets, given an increase in the tax burden doesn’t look feasible at this moment.”

The proposal is crucial for President Luiz Inacio Lula da Silva to win over investors, who have been worried about the health of public finances since the leftist leader obtained congressional authorization to boost outlays, bypassing current spending rules that will be replaced by the new fiscal framework. Since then, concerns about swelling debts have helped to fuel inflation expectations keeping, in turn, borrowing costs high.

Eoin Treacy's view

Brazil was very early in raising rates and now has some of the highest real rates of any country. That begs the question, what will be required for rates to begin coming back down? The fiscal agreement announced today is a step toward placating hawks at the central bank who are reluctant to ease up while the government is talking about major giveaways. 

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