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BCB's Campos Neto Says Risk Premium In The Curve Is Excessive

BRAZIL
  • In a panel discussion alongside the Fed's Powell and ECB's Lagarde at the ECB conference in Sintra today, BCB President Campos Neto said that current market prices in Brazil are not in sync with reality. Campos Neto acknowledged that the main risk Brazil faces is on the fiscal side, but said that risk premium in the curve was excessive. Meanwhile, he remains confident that future inflation will be lower than what the market expects.
  • Despite his comments, Brazilian assets remain under pressure today, with USDBRL up by another ~0.6% and DI swap rates another 10bp or more higher at the long end. For USDBRL, currently trading just below the 5.70 level, a cluster of late-2021 highs around 5.75 provides the next point of note.
  • Looking ahead, Valor International notes that the National Treasury’s May-June Evaluation Report on July 22 will be crucial for understanding the government’s commitment to the spending track and the fiscal framework. Expectations are currently that the government will announce a spending freeze of around BRL 20bn.

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