Brazil: Recovery mode - Rabobank

Analysts at Rabobank note that the Brazilian assets got back in recovery mode in recent days, with a little help from external conditions but especially driven by renewed optimism on economic reforms.

Key Quotes

“Thursday’s announcement of scraps of information about the government’s proposal (e.g. minimum age of retirement of 65 for men, 62 for women, with a fast transition) improved perceptions of the Executive branch’s commitment to fiscal austerity. The commitment is a necessary condition to get support from the parliament, as negotiations with Congress start.”

“In the FX space, BRL outperformed most peers, rising 0.8% vs. the USD, closing at 3.70/USD. At the same time, Brazil’s (5-year) CDS is now in the low 160s (in bps, lowest since Apr-18).”

“The coming week brings a light macro calendar. The highlight is February IPCA-15 inflation preview (Thu.): we project a 0.33% m/m gain, taking the annual reading down by 5bps to 3.72% y/y. That’s still short of the BCB’s mid-target (4.25% for 2019).”

“On the realm of politics and reforms, President Jair Bolsonaro is expected on Wednesday to send to Congress the official government proposal for the pension reform.”