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Brazilian President Dilma Rousseff reelection raises doubts about changes in macroeconomic policy - TD Securities

FXStreet (Łódź) - Blue Macellari, Senior LatAm Strategist at TD Securities comments on Brazilian President Dilma Rousseff's reelection over the weekend and its possible implications for Brazil's economy.

Key quotes

"A second term for Dilma raises serious questions about whether we'll see a shift in the macroeconomic policy mix that has left Brazil with stagnating growth and high inflation amid growing state intervention. While we initially expect Dilma to make conciliatory overtures in an attempt to repair her strained relationship with the market, we think these gestures will prove hollow over time."

"We expect BRL to open higher on the news, but believe we may see pressure ease later in the week as the market tries to convince itself that Dilma 2.0 will make a substantive move away from the interventionist policy mix that characterized her first term."

"There's already been speculation that Dilma will face intense pressure from within her party to adopt a more market friendly policy mix, and even last week there was chatter in the market that a second-term Dilma would 'pivot' in a second term. Unfortunately, we believe that this is wishful thinking."

"In our view, there are two key reasons why a more market-friendly policy mix is unlikely to materialize - (1) the ideology underlying her economic framework has not changed and (2) she will continue to micromanage her key economic policy makers."

"In terms of her economic framework, her fundamental belief is that the state can engineer conditions sufficient to bring about a manufacturing-led return to growth, and this election cycle hasn't changed that. Add to this her hands-on management style and it means that even if we see a more market friendly appointment at the Ministry of Finance, Dilma's unlikely to give the new Minister the autonomy to truly shift course."

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