HALISTER1: Lula’s Possible Return to Brazil Govt Pressures BRL, Swaps: CM

Lula’s Possible Return to Brazil Govt Pressures BRL, Swaps: CM

(Bloomberg) -- BRL drops, DI swap rates soar on concerns over possible return of former President Lula to government as member of President Rousseff’s cabinet, Camila Abdelmalack, chief-economist at CM Capital, says in a phone interview.
  • “Lula in a ministry could give Rousseff short-term survival,” Abdelmalack said; “the market knows that Lula advocates for stimulus measures and his Workers Party defends the usage of international reserves”
  • Expanding credit would be incompatible with BCB priority for fighting inflation and Finance Minister’s duty to fix the budget
  • If a large amount of reserves are used, it could harm country’s cushion
  • Brazil needs a whole political shift, with brand new leadership, to embrace major reforms; only after that, govt would be able to expand credit to boost growth, Abdelmalack says
  • While rising uncertainties weaken the currency, it may be turned into a buying opportunity if the prospects of impeachment continue to rise even if Lula moves into the cabinet
  • Opposition may reinforce attacks on government, taking some advantage of Lula being together with Rousseff in Brasilia, opposition may ’’aim at one to catch two’’
  • NOTE: Lula said to decide soon on joining Rousseff cabinet; decision is said to become more urgent after Sao Paulo judge, who was going to rule on request for Lula arrest warrant, said decision should fall to Federal judge Sergio Moro
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Camila Abdelmalack (Cm Capital Markets Corretora De Cambio Titulo E Valores Mobiliarios Ltda)
Dilma Rousseff (Federative Republic of Brazil)
Luiz Da Silva (Federative Republic of Brazil)
Sergio Moro (Federative Republic of Brazil)

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