2025.12.2216:46:20UTC+00Brazilian Real Drops to Lowest Since August

The Brazilian real has depreciated toward 5.60 against the US dollar, hitting its lowest point since August. This decline can be attributed to increased political uncertainty and domestic economic risks, which have driven Brazil’s risk premium higher. Concerns about a potential revival of an electoral cycle linked to Bolsonaro and recent congressional actions, such as the Senate bill aimed at reducing Jair Bolsonaro’s sentence, have blurred the prospects for policy unity and effective fiscal management. This situation has led to an expansion in foreign exchange premiums. Furthermore, weaker economic activity data indicate that Brazil entered the fourth quarter on shakier ground, with slowing growth and revenue momentum, thereby diminishing its fiscal cushion. Although the 2026 budget aims for a primary surplus of 0.25% of GDP, the projections from the Focus Bulletin suggest a more pessimistic deficit scenario nearing 0.60% of GDP. Concurrently, the central bank has maintained the Selic rate at a restrictive 15%, resulting in high real interest rates. However, this has offered limited support to the Brazilian real, as ongoing political and fiscal uncertainties reduce the attractiveness of carry trades and postpone confidence in any potential easing strategy.