Brazil Local Markets Haunted Yet Again by Fiscal, Election Risks
- Investors worry about more government spending ahead of vote
- Swap rates jump, currency weakens on fuel-tax cut proposal
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Brazil’s fiscal and election risks are re-emerging as the main drivers for local markets, with investors fretting the October presidential vote will trigger more public spending.
Traders ditched the Brazilian real, piled into inflation-linked bonds and sent swap rates soaring this week in reaction to a government proposal to reimburse states for the revenue lost if they agree to bring a tax on diesel and cooking gas to zero. The measure, aimed at curbing inflation by lowering fuel prices, is expected to drain about 30 billion reais ($6.2 billion) from public coffers.