Risk Premiums and Exchange Rate at the Start of the Temer Administration

BRAZIL ECONOMICS - Report 09 May 2016 by Affonso Pastore, Cristina Pinotti, Caio Carbone and Marcelo Gazzano

As the start of the Temer government approaches, we want to answer two questions that are often raised: assuming the new government obtains sufficient political support to carry out the structural reforms necessary for the fiscal adjustment, can a sharp drop in the risk premiums be expected, hastening the return of Brazil’s investment grade classification?; might the increased demand for Brazilian assets cause the real to appreciate strongly, jeopardizing the impulse to renewed growth from expansion of net exports?
In this report, we give a negative response to both queries.

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