{"id":94457,"date":"2025-06-04T11:44:36","date_gmt":"2025-06-04T14:44:36","guid":{"rendered":"https:\/\/murray.adv.br\/?p=94457"},"modified":"2025-06-04T11:44:36","modified_gmt":"2025-06-04T14:44:36","slug":"blackrock-sees-fiscal-issues-elections-holding-more-sway-over-exchange-rate","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/blackrock-sees-fiscal-issues-elections-holding-more-sway-over-exchange-rate\/","title":{"rendered":"BlackRock sees fiscal issues, elections holding more sway over exchange rate"},"content":{"rendered":"
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Head of research and emergin-market bond manager Pablo Goldberg believes Brazil could benefit from U.S. capital outflows<\/em><\/strong><\/h6>\n<\/div>\n<\/div>\n
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06\/04\/2025 <\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

The interest rate shock announced by Brazil\u2019s Central Bank at the end of last year, which pushed the Selic to 14.75%, helped the real recover against the dollar throughout this year. However, anchoring the Brazilian currency can\u2019t rely solely on high interest rates, especially since rates will eventually be cut. That points to the need for greater focus on local risk factors, according to Pablo Goldberg, head of research and fixed income manager for emerging markets at BlackRock.<\/p>\n<\/section>\n

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\u201cWhat\u2019s more important is entering a process where you reduce the embedded risk in assets, which will allow you to lower the real\u2019s carry without driving investors away from the country,\u201d Mr. Goldberg said in an interview with Valor. \u201cWhat\u2019s really high right now is not just the interest rate differential, but the risk that these high rates need to compensate for [in order to keep the currency anchored].\u201d<\/p>\n<\/div>\n

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When analyzing the impact of interest rate differentials on the domestic exchange rate, Mr. Goldberg explains that the real\u2019s anchoring through high rates is a gradual, day-to-day process\u2014while a single piece of news that worsens the perception of risk can sharply devalue the currency in just one session.<\/p>\n<\/div>\n

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\u201cThere\u2019s a well-known saying: currency appreciation goes up like a staircase, step by step, but depreciation goes down like an elevator, all at once. Carry alone gives the currency a purpose, but high interest rates don\u2019t justify themselves.\u201d<\/p>\n<\/div>\n

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\u201cWe usually think in terms of \u2018carry to risk\u2019\u2014the interest rate differential adjusted for risk. The higher the risk, the higher the carry. Today, the real offers good carry for the associated risks,\u201d says the BlackRock manager, who maintains a constructive view on the Brazilian currency in the short term.<\/p>\n<\/div>\n

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Due to the real\u2019s characteristics, Mr. Goldberg sees no obstacles to its continued appreciation in the near future. \u201cBesides the carry, valuation is favorable [for the real]. The Brazilian exchange rate is not overvalued, so fiscal matters, elections, and the monetary policy cycle will determine Brazil\u2019s weight in global portfolios,\u201d he explains.<\/p>\n<\/div>\n

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Regarding the electoral cycle, Mr. Goldberg says that with fiscal issues in focus, any candidate who, during the campaign, signals an intent to ease the country\u2019s debt trajectory will automatically become the market favorite. \u201cI won\u2019t name names, but I think those who provide the market with confidence that this particular area of policy will be well managed will do well.\u201d<\/p>\n<\/div>\n

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On Brazil\u2019s monetary policy cycle, Mr. Goldberg aligns with market consensus and sees little room for further rate hikes, with the remaining question being when the Central Bank will begin cutting the Selic. \u201cThe current level of restriction [from the rate] is significant. But the economy still hasn\u2019t responded as one might expect at this level of restriction. Perhaps that\u2019s due to fiscal factors,\u201d he says.<\/p>\n<\/div>\n

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\u201cAlthough inflation expectations are falling, they\u2019re still significantly above the Central Bank\u2019s target, so I don\u2019t expect a sharp monetary easing any time soon\u2014unless the economy slows very quickly, which also seems unlikely,\u201d he adds. Mr. Goldberg believes the first rate cuts could come at the end of this year or possibly only in 2026.<\/p>\n<\/div>\n

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Not knowing exactly when the Central Bank will cut rates doesn\u2019t mean investors should stay away from the interest rate market, Mr. Goldberg argues. \u201cIt\u2019s not just about when rate cuts will begin, but about the market pricing in the DI [interbank deposit] curve,\u201d he says. \u201cThose building positions now are betting rates won\u2019t go higher, and they\u2019re collecting yield for that. It\u2019s more about earning carry than capital appreciation for now.\u201d<\/p>\n<\/div>\n

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BlackRock does not detail its allocations, but Mr. Goldberg says he favors Brazilian positions in sovereign bonds, corporate bonds, and the currency itself. He believes Brazil\u2014like other emerging markets\u2014could benefit from global investors diversifying away from U.S. assets due to a number of factors.<\/p>\n<\/div>\n

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\u201cI\u2019m not saying global assets are now more attractive than U.S. assets, but compared to before, there\u2019s been a small decline in the ratio between non-U.S. and U.S. assets,\u201d he notes.<\/p>\n<\/div>\n

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Mr. Goldberg attributes this shift to uncertainties around Donald Trump\u2019s trade policies and their potential effects on the U.S. economy (whether through inflation or a slowdown); the challenging position the Federal Reserve may find itself in as a result; the growing belief that artificial intelligence and tech are not exclusive to the U.S.; and America\u2019s own fiscal situation, which could prompt global investors to seek safe-haven alternatives to U.S. Treasury bonds.<\/p>\n<\/div>\n

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\u201cAll of this opens up opportunities in other markets and geographies, meaning a global weakening of the U.S. dollar,\u201d concludes Mr. Goldberg.<\/p>\n

*By Arthur Cagliari\u00a0\u2014 S\u00e3o Paulo<\/p>\n

Source: Valor International<\/p>\n

https:\/\/valorinternational.globo.com\/<\/p>\n

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Head of research and emergin-market bond manager Pablo Goldberg believes Brazil could benefit from U.S. capital outflows     06\/04\/2025 The interest rate shock announced by Brazil\u2019s Central Bank at the end of last year, which pushed the Selic to 14.75%, helped the real recover against the dollar throughout this year. 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