He dollar flies in Brazil and this day it touched 6 real. In this way, the greenback soared 3.4% in just three days. This strong depreciation of the real, in turn, complicates Argentine exports since the neighboring country is our main trading partner, and in Argentina, with the exchange rate, the loss of competitiveness worsens.
In the first operations this Thursday it was trading at R$5.95 per dollar, although it was worth R$6 per dollar. In turn, the Sao Pablo stock market, the Bovespa hits low in almost 5 months
“The real showed a devaluation trend throughout the year, in a challenging fiscal context for Brazil. Given that it is one of Argentina’s main trading partners, The devaluation of the BRL puts pressure on the Argentine peso via the real exchange rate (RER), given that Brazilian exports become more competitive“said Juan Manuel Franco, Chief Economist of the SBS Group, on this day.
Regarding the impact on parallel dollars, he assured that The dynamics of these depend more on domestic factors and the market expectation of whether the local economy will be able to normalize going forward.
For this reason, he opined “although the devaluation of the BRL is not positive news for the peso, Argentina could also lower the crawl from 2% monthly to 1% in case the expectation continues to be favorable for our country. That said, Argentina must continue normalization and not lose course, especially in fiscal matters, so that the devaluation of the BRL affects it as little as possible.”
The Government in Brazil seeks to find a way out of the devaluation of the real
The Minister of Finance of Brazil, Fernando Haddadtried on Thursday to calm the market, which collapsed after the announcement of a reform that would increase income tax exemptions, emphasizing that the measures would be fiscally neutral and would only come into force in 2026 after legislative approval.
After weeks of delays, Brazil announced on Wednesday a package to contain mandatory spending, accompanied by an unexpected income tax reform aimed at easing the burden of the middle class to mitigate possible negative reactions from public opinion.
The markets reacted negatively to the strategy. The Brazilian real weakened more than 1% on Thursday and slid above 6 units per dollar, marking a historical lowwhile interest rate futures extended their rise.
Haddad said at a press conference that the measure to increase the exemption threshold for those earning up to 5,000 reais per month had an estimated fiscal impact of 35 billion reais. (5.89 billion dollars), but which would be totally neutralized with compensatory measures.
According to the Government, About half of the compensation will come from setting a higher effective tax rate for the richest. Those earning more than 600,000 reais a year would see their effective income tax rate increase, reaching 10% for people earning more than 1 million reais a year, according to the proposal.
The current effective rate is 4.2% for the top 1% of earners and 1.75% for the top 0.01%, according to government data.
Haddad said the US dollar had been strengthening globally, and inflation in Brazil is expected to end the year within or very close to the official target range of 1.5% to 4.5%.
“The market has to re-read what the Government is doing. They have been wrong in terms of growth and deficit (projections)”Haddad said. “Our work is not done. I don’t believe in silver bullets. I’m happy with this year’s results.”
The Government indicated that the package of mandatory spending control measures announced on Wednesday will generate a fiscal impact of 327 billion reais between 2025 and 2030.
The measures, which have yet to be formalized and voted on by Congress, also include stricter restrictions on the BPC social benefit, aimed at helping the elderly and disabled, and greater oversight of the Bolsa Familia social assistance program.
Source: Ambito
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