The Brazilian real falls again this Friday and hits a new historical low.
The Brazilian real plummeted to a new all-time low on Friday. They maintain that one of the causes is that Brazil has too much public debt in national currency, derived from too many tax exemptions and excessive public spending. This week the Minister of Economy, Fernando Haddad, revealed on Wednesday its plans to expand tax exemptions for lower incomes, and to increase taxes for higher incomes.
The real fell 1.3%, to 6.09 per dollar. In turn, the Brazil ETF fell 3.6% on Wednesday and falls around 4.9% in the pre-market this Friday. Brazilian equities also extended their losses, and the stock index Bovespa fell more than 2% in the previous day, to a minimum of more than three months. The yield on Brazil’s benchmark 10-year bond meanwhile rose to a more than one-year high of 13.49%.
The drop in Brazilian assets comes after Brazil, after weeks of delay, revealed on Wednesday its plans to extend tax exemptions for lower incomes, and to increase taxes for higher incomes. The proposal also included the intention to cut public spending in the coming years.
The announcement triggered an exodus of investors in the currency, which plummeted approximately 3.5% in two days. The uncertainty surrounding these fiscal measures has injected new volatility into Brazilian markets, as concerns grow that the government will not be able to meet strict budget rules established last year to curb rising public debt.
“The measures did not meet expectations and reinforce the idea that there is a lack of political commitment to stabilize public finances,” said Jason Porquey, deputy chief emerging markets economist at Capital Economics.
“Brazil has too much public debt in domestic currency, stemming from too many tax breaks and too much public spending,” said Hasnain Malik, head of equity research at Tellimer Research. On Thursday, Finance Minister Haddad sought to calm market nerves by stating that the reforms will be fiscally neutral and analyzed by Congress in time to take effect in 2026.
Source: Ambito
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