Brazilian real likely to witness downside risks following ongoing political disturbances, says Commerzbank

The Brazilian real is expected to witness downside risks, following ongoing political disturbances as the protests for or against Lula might strengthen further so that things are likely to remain turbulent in Brazil on a political front, according to the latest report from Commerzbank.

The likelihood that the former President Luiz Inacio Lula da Silva will be able to stand for the Presidential elections in October as a representative of the Workers Party has fallen to almost zero. In a very tight decision, the top court rejected Lula’s appeal to put off his jail sentence. Lula was convicted to a jail sentence for corruption last year.

Due to the conviction, Lula should not be able to stand. The Workers Party nonetheless put him forward as their official candidate a while ago and in opinion polls, Lula is the clear leader. The markets should be relieved about the court decision. Lula is a strong critic of the acting President Michel Temer’s reforms (above all the planned pension reform).

The financial markets consider them necessary though as they will progress the budget consolidation. The BRL is likely to appreciate against USD today. However, it is questionable how long this relief is going to last; as not all avenues have been explored in Lula’s legal fight, the report added.

Moreover, the candidate who comes second in the polls – the right-wing conservative Jair Bolsonaro – does not exactly come across as an advocate of the necessary reforms.

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