Brazilian politics play a central role for the BRL
The Brazilian Real (BRL) is one of the best 2016 performers:until March 4, it appreciated 5.5% YTD, being in the Top 3. Over week from Feb. 29 to Mar. 4, the BRL was the currency that gained the most against USD (6.24%). While that’s true that the USD depreciated against all the currencies during the week – in particular due to the slight increase of oil prices – it is very likely that ‘domestic factors’ (and especially politics) may explain part of the BRL movement on the week and also recently. To get a clearer picture, we tried to assess whether political factors (impeachment talks) played a major role on the BRL. To do so, we did a simple exercise: we analyzed the evolution of the USD/BRL from December 2015 so far. Specifically, we chose this month as it was a ‘big’ month on the political front, including the opening of the impeachment proceedings (see more details below). We also made a comparison with a basket of Latam currencies to assess more clearly the idiosyncratic effect of politics on the BRL.
Our conclusion is that this simple exercise suggests that politics actually exerts a determinant influence in the BRL’s movement. In particular, the BRL appreciated when the Congress moved forward to turn the impeachment process a reality and when the corruption investigation advanced. On the contrary, the BRL depreciated when the impeachment process slowed. Of course, we are aware of the limitation of this work and further analysis should be done in order to dissociate all the shocks that could explain the BRL’s movements.
Major Political Events:
- 02/12:The lower house speaker, Eduardo Cunha, opened the impeachment proceeding against Dilma: the Real appreciated.
- 09/12:Brazilian Supreme Court’s minister, Edson Fachin, stopped the creation of the impeachment committee until the Court rules on it. The Real depreciated.
- 11/12:Mr Fachin denied a request of Mr Cunha for the impeachment committee starts to work again. The Real depreciated.
- 18/12:The Supreme Court gave Dilma Rousseff a victory as it gave the Senate the authority to review the grounds for the impeachment even if the lower house votes for impeach her. Dilma has better chances of blocking impeachment in the Senate. The Real clearly devalued further.
- 22/02:Brazil president Dilma Rousseffs' campaign chief was arrested over alleged bribery ties. The Real appreciated.
- 03/03:Former ruling government's party Senator Delcidio Amaral, a key legislative party for President Dilma Rousseff before he was arrested in November, allegedly tied as part of a plea bargaining that the president and her predecessor to the corruption scandal at the oil state company Petrobras. The Real appreciated.
- 04/03: Former president Lula was briefly detained on Friday for questioning in a vast corruption scheme. The Real appreciated.