According to the results of a poll conducted by Reuters, the Brazilian real is forecast to appreciate over the course of the following 12 months; however, it will continue to be subject to growing pressure as a result of planned increases in social spending. This will occur against the backdrop of a complex economic environment in October’s run-up to the presidential election in Brazil.

The economic freedom score of Brazil is 53.3, making it the 133rd most free economy in the 2022 Index. Brazil is placed 26th among 32 nations in the Americas, and its total score is lower than the regional and global norms.

In 2019, Brazil’s economic growth stagnated; in 2020, it went negative; in 2021, it regained. The country’s degree of economic independence has hardly altered during the previous five years. Brazil’s economic freedom has increased by just 0.4 points during 2017 due to minor improvements in labor freedom and government integrity. As a result, Brazil remains in the lowest rankings of the “Mostly Unfree” nations. Its fiscal health is among the poorest in the world, while its monetary flexibility is among the best in the world.

The median forecast of a poll of 28 analysts, which typically reflects a more conservative consensus view, saw the real strengthening 3.2 percent to 5.24 per U.S. dollar in three months and 4 percent to 5.20 in one year from 5.41 on Wednesday. This would be a decrease from the value of the real on Wednesday, which was 5.41.

However, a majority of eight out of thirteen strategists who responded to a second question on the risks to their projections stated that they were skewed to the negative. This indicates that there is a potential for a further downturn. Four of them said that they had a positive slant, while the fifth participant remained neutral when asked about their lean.

The poll’s most pessimistic forecast predicted that the currency’s value would drop to 5.80 U.S. dollars per unit over the next three months, which would result in the currency possibly giving up all of the ground it has gained this year since the close of 2021.

According to a research compiled by Citi analysts, “For the time being, BRL may display spells of underperformance if the government announces new fiscal measures to cut consumer prices.” [Citi]

A move that is viewed as essential to strengthening support for President Jair Bolsonaro’s campaign for re-election was taken last week when Brazilian senators established emergency procedures that permit disbursements of a vast assistance package.

According to a research written by experts at Goldman Sachs, “The planned measures would in certain circumstances lead to a misallocation of resources in the economy and might have a permanent effect on the public finances.”

Even while the unemployment rate is falling at a rapid pace, dissatisfaction is still at a high level since earnings are not keeping pace with growing costs for consumer goods. After having completed a significant portion of its work on interest rates, the Central Bank of Brazil (Brazil’s Central Bank) has assured the public that the country’s inflation rate would begin to decrease shortly.

Luiz Inacio Lula da Silva, who served as president under the Workers’ Party, continues to maintain a lead against Jair Bolsonaro in the race for the presidency. If he successfully wins the election, he intends to institute a new pricing strategy for gasoline, eliminate a limit on the amount of money the government may spend, and significantly reduce the amount of land cleared for development.

In contrast to its volatile South American counterparts, the value of the Mexican peso is expected to maintain its proximity to the level of 20.0 pesos to one U.S. dollar, which has served as its convergence point since the beginning of 2021. This will bring it to almost the same levels as it was at the beginning of the year.

The results of a survey conducted by the Bank of Mexico last week showed that its experts increased their projections for how high the Bank of Mexico would raise its benchmark interest rate this year. These results provide more support for the peso’s outlook.