USD/BRL target revised up to 4.00

Fresh multi-year lows await the BRL as economic and political sentiment vs the country continues to deteriorate. USD/BRL target for the end of the year is revised to 4.00, the peak of March 1992, said Societe Generale in a report on Friday.

The 5y CDS has rocketed to 376bp from 250bp in July. Moody's downgraded Brazil's rating to Baa3 from Baa2 on 11 August citing weak growth prospects. A cut to non-investment grade status (junk) cannot be ruled out. President Rousseff rejected finmin Levy's suggestion to cut public spending and this potentially puts the 2016 budget on course for a deficit.

The BCB kept the Selic rate on hold at 14.25% on 2 September. Further tightening is not ruled out even though GDP shrank 2.6% yoy in Q2-15, adds SocGen. CPI rose to 9.56% in July.