Brazil’s Real Gains Ground, but Fiscal Concerns Keep It in Check: Reuters Poll

By Gabriel Burin

BUENOS AIRES (Reuters) – Brazil’s real is expected to remain under pressure due to ongoing concerns about the country’s fiscal situation, even with hopes for an interest rate cut from the U.S. Federal Reserve later this month, according to a recent Reuters poll.

Since June, the currency has depreciated as fears surrounding the budget deficit have increased, which has worsened to over 10% of gross domestic product in the year leading up to July.

While the survey provided relatively optimistic numeric forecasts for the real, additional questions revealed a more cautious outlook. The currency is projected to appreciate by 7.2% over the next year, targeting 5.27 per U.S. dollar, compared to its value of 5.65 on Tuesday. This forecast is based on the median assessment of 26 foreign exchange strategists surveyed from August 30 to September 4.

However, a slight majority—seven out of 13—who answered supplementary questions believe their estimates are tilted toward a weaker real. The remaining six respondents were split between four who perceived more upside risk and two who maintained a neutral stance.

"The real continues to face pressure primarily due to a challenging fiscal landscape, with a notable increase in spending and adjustments focused only on revenue growth," noted Flavio Serrano, chief economist at Banco BMG. "A stronger commitment to fiscal targets might lead to a correction in the real’s value. Additionally, a start to monetary easing in the U.S. could support this adjustment."

The outlook for the Mexican peso is also mixed. While it is projected to rise by 3.7% over the next year to reach 19.08 per dollar, seven of ten respondents who answered extra questions viewed the risks as leaning toward the downside, while two saw them as neutral and one as favorable.

The peso has struggled recently after the government introduced a judicial reform that has raised investor concerns about potential impacts on business interests. On Wednesday, the lower house of Congress approved this initiative.

In Argentina, the consensus forecast anticipates a depreciation of 36.5% for the peso over the next year, reaching 1,500 per dollar. However, some economists believe the currency may perform better than expected, having defied pessimistic predictions earlier this year. "The current crawling peg system for the peso is likely to remain until at least the end of 2024, though it may become increasingly difficult without new government funding," stated Federico Zirulnik, economist at CESO.

To date, the Brazilian real has decreased by 14.2% this year, the Mexican peso has dropped by 14.3%, and the Argentine currency has fallen by 15.2%, influenced by a stringent central bank policy that includes a predetermined 2% monthly devaluation rate.

(Reporting and polling by Gabriel Burin in Buenos Aires; additional polling by Purujit Arun, Pranoy Krishna, and Rahul Trivedi in Bengaluru; Editing by Ross Finley and Jan Harvey)