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Guedes Comments On Spending Cap Add Pressure To Local Currency

  • The Brazilian Real spent the majority of Wednesday on the front foot, erasing a large portion of the prior day's losses. However, late commentary from Economy Minister Guedes prompted a sharp late rally with USDBRL closing at the highest level since April once again.
  • Guedes outlined that the Brazilian government may seek an "exemption" to the country's spending limit to finance its new social program, hours after President Bolsonaro declared that the additional spending would comply with the fiscal rule. The key headlines included:
    • Brazil BRL400 benefit is temporary, to offset CPI
    • Brazil studying waiver to boost expenses temporarily
    • Brazil mulled reviewing spending cap now instead 2026
    • Waiver to raise Brazil expenses may be at BRL30B
    • Brazil to review spending cap or create extra credit (All BBG)
  • Brazilian Treasury auctions fixed-rate LTN local notes due 2022, 2023 and 2025; fixed-rate NTN-F local notes due 2027 and 2031; and Selic-linked LFT notes due 2023 and 2027. The volume of notes will be released at 10:30am, auctions will take place at 11:45am (Brasilia time).
  • Brazil House cmte rescheduled meeting on court-ordered payments bill (precatorios)for 2:30pm on Thursday
  • Brazil to Roll Over Up to 15,000 FX Swaps Oct. 21, however, no mention of any other operations due on Thursday.

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