The dollar started the week rising against the Brazilian real on Monday morning (6), which should count with low liquidity due to a holiday in the United States, while investors raised caution on the eve of demonstrations planned for September 7 in Brazil. The dollar started at BRL 5.2086.
The Labor Day holiday in the United States keeps North American markets closed on Monday, which may reduce trading volumes on the day. Furthermore, the approaching Independence Day in Brazil keeps investors nervous. President Jair Bolsonaro is betting on an overwhelming demonstration on Tuesday to recover political traction.
“This week, (…) the scene will be dominated by the Independence Day demonstrations, which have turned into a public dispute between the Brazilian Supreme Court and the President. The dispute may become an embryo of an institutional crisis whose outcome is difficult to predict. Our evaluation is that, in the end, the conflict will have a peaceful solution, but the performance of the economy will not go unscathed,” wrote analysts at Genial Investimentos in a note.
Over the weekend, Bolsonaro defended the participation of military police in the acts and assured that he will not back down from his positions, amid strong tension between the Executive and Judiciary Branches.
Besides concerns over the demonstrations, Victor Beyruti, an economist at Guide Investimentos, recalled that the past week “reinforced worries about inflation while bringing lower-than-expected economic data.”
Market raises basic interest rates in view of high inflation
As if the political uncertainties affecting market behavior were not enough, the Brazilian Central Bank disclosed in its weekly Focus report that the forecast for the basic interest rate increased, both for the end of this year and the next, amid new hikes in inflation estimates and a worsening of the economic scenario.
The consulted specialists increased the Selic projection to 7.63% at the end of 2021 and to 7.75% in 2022, against a previous forecast of 7.50%.
In the 12 months to July, inflation accumulated a high of 8.99%, and the weekly survey pointed to the expectation of an advance in the IPCA of 7.58% this year and 3.98% next year.
The inflationary scenario is further complicated by the implementation of the tariff flag “water scarcity”, which will bring an additional increase of 6.78% in the average tariff for regulated consumers.