The financial market turbulence observed after Brazil’s elections reflects an adjustment in positions rather than a guarantee that stocks, the dollar and Interest rates will remain at their current levels, according to Mansueto Almeida, chief economist at BTG.
In an interview with CNN Money, Almeida said the country’s main short-term problem is uncertainty over the government’s new fiscal plan. He linked the lack of clarity to the stronger dollar, the stock market decline and the rise in the interest-rate curve.
The economist argued that the government needs to present a clear strategy for controlling the growth of public spending. In his assessment, this would help reduce inflation and create conditions for lower interest rates.
Almeida said that simply announcing a consistent fiscal plan with broad political support could significantly improve market sentiment. However, he added that investors would monitor whether the proposed measures are implemented over time.
He also pointed to the combination of the absence of a fiscal plan, Oil prices above US$100 per barrel and the dollar’s rise from R$5.00 to R$5.40 in one month as factors leading analysts to project higher inflation in the coming years. This scenario, he said, makes it more difficult for the Central Bank to continue cutting interest rates.
Despite the short-term challenges, Almeida said Brazil has solid economic fundamentals. He cited the country’s position as a net oil exporter, strong agricultural performance, the prospect of another large grain harvest and improved external accounts.
The economist nevertheless argued that excessive public spending keeps interest rates high, putting pressure on indebted households and companies. He said the solution is not necessarily to cut expenses, but to control the pace at which spending increases.
According to Almeida, addressing this issue would create a more favorable environment for investment and sustainable economic growth.
Sources: CNN Brasil.