BTG Pactual forecasts Brazilian real more devalued against the dollar by the year-end

BTG Pactual worsened exchange rate estimates; in the most optimistic scenario, the real is BRL 5.10 against the rate of BRL 4.80 previously forecasted

Market forecasts higher inflation and devaluation of the real against the dollar in Brazil this year
Photo: REUTERS/Rick Wilking
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BTG Pactual digital’s macro research team raised its projections for the currency exchange rate in the three scenarios it considers, with the political agenda as the main point of attention in the coming months in the domestic sphere, while abroad the signals from the US central bank, China’s indicators, and the US debt imbroglio are the focus of concern.

In the primary scenario, the dollar should now end the year at BRL 5.30, against BRL 5.00 previously forecasted. In the optimistic scenario, the currency stands at BRL 5.10 vs. BRL 4.80 estimated before. In the most pessimistic predictions, the dollar ends BRL 5.60, from BRL 5.40 in the previous projection.

The numbers of the basic and optimistic scenarios take into consideration exchange rate appreciation, as the dollar is valued at around BRL 5.51 on the market this Monday.

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The base scenario includes a reduction in US stimulus in December with a signal of interest rate hikes for the fourth quarter of 2022, as well as a resolution in Brazil to increase court-ordered debts without the so-called “tortoises” (a Brazilian expression for materials foreign to the central theme of the Proposed Amendment to Constitution), among other considerations.

In the optimistic scenario, the indication by the Federal Reserve to increase interest rates is only for 2023, with the same solution mentioned above for court-ordered debts. In the more negative scenario, the end of this imbroglio in Brazil is based on the “tortoises”, increasing the financial risk, while in the US the Fed points to an increase in interest rates for the third quarter of 2022.

In the document, analysts at BTG Pactual digital admitted that they were surprised in September by the risks coming from the Asian market, especially China, while in the US the change in orientation by the central bank was more “hawkish” (inclined to less monetary stimulus) than expected.

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Professionals consider that, as the latest moves by the Central Bank have signaled that interest rates will be high enough to anchor inflation expectations, the spotlight then turns to the political agenda.

“The Income Tax Reform and spending on court orders, which are directly linked to the discussion of reformulating the Bolsa Família, may change the market’s perception in relation to public accounts, considering that the stoppage in Congress on the issues we have mentioned may result in new social benefits capitalized through extraordinary credit”, said the professionals of BTG digital.

For them, this means greater fiscal pressure and, consequently, an increase in the risk premium of the Brazilian economy.

(Translated by LABS)

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