empty
21.11.2022 06:48 PM
Brazil is preparing for a serious recession

Last Friday, Roberto Campos Neto, the central bank's president, announced changes to the fiscal plan, indicating that a deterioration in the fiscal situation might necessitate a change in monetary policy.

Brazil is preparing for a severe economic downturn.

This image is no longer relevant

The words are primarily addressed to the transition team of Brazil's incoming President Luiz Inacio Lula da Silva, who intends to include new fiscal policy commitments in the proposed constitutional amendment.

The proposed amendment will specifically include the commitment to the new fiscal anchor, which exempts nearly 200 billion reais ($37.16 billion) in social spending from the constraints of the nation's budget.

The first step toward an unregulated economy was taken with this one. So, following the election, Lula pledged to remove the constitutional spending cap, which limits public spending growth by taking the previous year's inflation into account, without mentioning the new fiscal anchor that will take its place. Investors were alarmed by the news because it raised the possibility of a record-high rise in public debt and a change in monetary policy. Brazilian assets consequently reacted negatively by devaluing the real.

The head of the Brazilian National Bank today also spoke unfavorably about the substantial increase in spending that the incoming administration of the new president, who takes office on January 1, has planned.

Remember that the Central Bank had warned that it might resume tightening monetary policy if expected disinflation did not materialize after 12 straight increases, which caused interest rates to rise to 13.75% from a record low of 2% in March 2021.

After winning the elections, the new president is undoubtedly attempting to win over a devoted electorate, but new loan pools could burden Brazilians. In addition, the advantageous period of low dollar prices and unrestricted borrowing has passed. Taking out dollar loans at this time would be foolish. Although it is entirely justified given the current circumstances, the new government may continue to restrict itself to domestic loan bonds and avoid attracting external borrowings.

Egor Danilov,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

US Market News Digest for May 29

Markets reacted to a US Court of International Trade ruling that found the Trump administration's tariff actions exceeded its authority. The decision has introduced fresh uncertainty for the S&P

Ekaterina Kiseleva 11:15 2025-05-29 UTC+2

Stock storm: Nvidia soars, Dow falls, court knocks down Trump tariffs

Nvidia shares up 5% after close; co reports quarterly results Dick's Sporting Goods rises after Q1 results beat expectations US trade court blocks Trump tariffs European stocks rise

Thomas Frank 10:49 2025-05-29 UTC+2

From Nvidia to Xiaomi: What's Driving Stock Market Growth and Decline Today

Indices Rising: Dow 1.78%, S&P 500 2.05%, Nasdaq 2.47% Consumer Confidence Recovers in May Temu Parent PDD Holdings Falls on Quarterly Revenue Slip Chinese Xiaomi Shares Set to Rise 2.3%

Thomas Frank 12:06 2025-05-28 UTC+2

Whoever doesn't risk a recession doesn't reduce the national debt? Trader's calendar on May 29–31

To be at the center of global attention and to "shape the planet's destiny" — that's what Donald Trump enjoys most. For him, it's essential to constantly generate headlines

Svetlana Radchenko 11:47 2025-05-28 UTC+2

US Market News Digest for May 28

The S&P 500 index has broken through the key 5,908 level, signaling the end of its recent correction and opening the door to further upside. A break above the resistance

Ekaterina Kiseleva 11:25 2025-05-28 UTC+2

US Market News Digest for May 27

US President Donald Trump announced a 50% tariff on imports from the EU, yet financial markets responded with restraint. Investors are increasingly adopting a "threat and retreat" strategy, buying stocks

Ekaterina Kiseleva 11:54 2025-05-27 UTC+2

Nvidia on the agenda: markets await quarterly report, dollar nears fifth straight monthly decline

Stock markets showed mixed dynamics on Tuesday after Donald Trump unexpectedly postponed the introduction of the promised 50% tariffs on goods from the European Union. The move only increased uncertainty

Thomas Frank 11:31 2025-05-27 UTC+2

Gold at $4,200? Why the Market Is Once Again Preparing for a Historic Rally

The gold market has recently been highly volatile, with dramatic movements in both directions. After breaking above $3,000 per ounce, the metal entered a phase of heightened volatility—testing resistance

Anna Zotova 00:23 2025-05-27 UTC+2

Bitcoin hesitates whether to pull back to $100,000 or climb to $115,000

The world's first cryptocurrency finds itself in limbo. After a recent rally, it pulled back and then settled. At the moment, Bitcoin is at a crossroads, with market participants closely

Larisa Kolesnikova 15:16 2025-05-26 UTC+2

All eyes on Nvidia as markets brace for fresh turbulence

Nvidia's results, the final earnings report from the Magnificent Seven, are set for release on Wednesday. Meanwhile, Donald Trump and European markets are back to square one. The 30-year

12:58 2025-05-26 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.