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Fiscal Concerns Weighing On Brazilian Assets

BRAZIL
  • Mounting fiscal concerns are continuing to weigh on Brazilian assets Wednesday, with DI swap rates rising by over 20bp across the curve, in stark contrast with the decline in US yields. After a move lower on the open following the soft US CPI data, USDBRL has also reversed course and is currently up by around 0.8% on the day.
  • To recap, Finance Minister Haddad was forced to say yesterday that he doesn’t have a proposal to replace the sections of the provisional measure related to PIS/Cofins that were returned to the government by Congress. His economic team had introduced the provisional measure last week as it sought to mitigate the cost of a payroll tax exemption that will amount to BRL 26.3bn, creating uncertainty over the government’s ability to meet this year’s fiscal targets.

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