Brazilian Real: Assessing Election Flows and the Fiscal Reform Outlook – Societe Generale

The Brazilian Real (BRL) has weakened 3% from its post-election high. Societe Generale reports increased inflows ahead of the presidential runoff, noting buyers near 5.10 and a low hurdle for a move below 5.00 if Bolsonaro wins. With a Bolsonaro victory as its baseline scenario, the bank expects better prospects for fiscal reforms and debt stabilisation.

3% retreat: Brazilian Real responds to election risk

"In Latam, flows have been stepped up into the BRL with the presidential runoff only four days away. "

"The real weakened by 3% from the post-election high two weeks ago but buyers emerged at 5.10 last week. The bar is low for a return below 5.00 if Bolsonaro clinches victory on Sunday."

"Two closely watched polls published on Monday showed differences between both candidates are narrowing within the margins of error. "

"Nexus/BTG Pactual puts Bolsonaro ahead by 0.6pp, down from 2.8pp. AtlasIntel/Bloomberg puts the lead at 2.2pp, down from 5.4pp."

"Under our baseline scenario of a Bolsonaro victory, the combination of a more market-friendly executive, a stronger conservative bloc and support from centrist parties should improve the prospects for advancing fiscal reforms aimed at containing mandatory spending growth and ultimately stabilising the public debt trajectory."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)