The incoming administration in Brazil has a historic opportunity to re-balance the policy mix in favour of tighter fiscal policy and looser monetary policy (and a weaker currency). What’s more, there are some, albeit tentative, signs that it will deliver. Public spending cuts look likely next year and if they total more than 1% of GDP, the next move in Brazilian interest rates could be down – a possibility that we think the markets are not currently giving enough weight to.
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