Brazil: Escalation of political uncertainty bodes ill for reforms and economy – Deutsche Bank

Brazil’s political/legislative uncertainty deepened yesterday when the prosecutor-general Rodrigo Janot charged President Temer of being involved in corruption, points out Dev Ashish, Research Analyst at Deutsche Bank.

Key quotes

“While the government could still have enough votes in Congress to prevent this indictment from going to the trial stage, this and several related developments raise the possibility that the pension reform will not be passed this year. The political/legislative uncertainty could rise further ahead of next year’s presidential election for which former President Lula, with a potentially different set of socio-economic policies, appears to be the front-runner at this stage.”

“The political/legislative uncertainty has negative implications for growth and for the fiscal trajectory, while it also raises the possibility of a smaller 75bp rate cut at the July Copom, as opposed the ongoing pace of 100bp rate cut.”