Markets react to Bolsonaro emergency salary extension pledge

Markets react to Bolsonaro emergency salary extension pledge
São Paulo Stock Exchange. Photo: Alf Ribeiro/Shutterstock

Investors issued a clear message after President Jair Bolsonaro expressed his intention to recreate the coronavirus emergency salary program. On Tuesday, the U.S. Dollar climbed to BRL 5.44, but slowed down after the Central Bank intervened, selling 20,000 forex swap contracts. Meanwhile, Brazil’s 5-year credit default swaps (CDS) — taken as a measure of the country’s risk — rose 4 percent after falling 14 percent last week.

Our February 8 Weekly Report explained how the government plans to extend the emergency aid program, which expired at the end of 2020.

Markets fear a further deterioration of Brazil’s public debt, which is already at 89 percent of GDP. Some leaders in Congress want to loosen federal spending cap rules to make space for extra welfare spending in the budget, something the Economy Ministry is against.

On Tuesday, Central Bank Chairman Roberto Campos Neto said there is “little to no room for an aid program without compensating with cuts elsewhere.”

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