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Brazil Market Rout Deepens as Bolsonaro Loses Economic Aides

Added 10-22-21 11:04:02am EST - “(Bloomberg) -- The rout in Brazilian markets deepened Friday after key members of the economic team left in protest over plans to boost welfare spending that will break a key fiscal rule seen as essential to keeping investor confidence…” - News.yahoo.com

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Posted By TheNewsCommenter: From News.yahoo.com: “Brazil Market Rout Deepens as Bolsonaro Loses Economic Aides”. Below is an excerpt from the article.

(Bloomberg) -- The rout in Brazilian markets deepened Friday after key members of the economic team left in protest over plans to boost welfare spending that will break a key fiscal rule seen as essential to keeping investor confidence in the country.

The real fell 1%, extending its losses this week to 4.5%. Stocks dropped as much as 4.2%, pushing the decline since Monday to more than 9% and set to enter a bear market. The slump is adding pressure on the central bank to raise rates more aggressively to tame inflation, with economists and traders now increasingly seeing a bigger hike than the 100 basis-points policy makers had pledged for next week.

“No one can really tell what’s ahead now. For markets, the move we’ve been seeing for the past few months continues -- stocks down, currency down, rates up,” said Mariam Dayoub, chief economist at Grimper Capital. “It’s just gotten worse now, and will only stop when we see something that puts a halt on this fiscal erosion.”Four members of the team that reports to Economy Minister Paulo Guedes stepped down on Thursday: Treasury Secretary Jeferson Bittencourt, Special Treasury and Budget Secretary Bruno Funchal and two of their top assistants. All of them publicly cited personal reasons for leaving, but privately expressed deep concern over Bolsonaro’s fiscal largesse and Guedes’s unwillingness to push back anymore on those plans, according to people familiar with the matter who asked not to be identified.

Guedes himself, however, plans to stay on, according to a person with direct knowledge of the situation. He believes that his departure would only further aggravate the situation, the person said.

While many Brazilians have been hit hard financially by the pandemic and would clearly benefit from additional assistance, the spending plan risks backfiring by deepening a surge in inflation that would only weaken the country’s tepid economic recovery.

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