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Will Brazil’s spending cap survive?

The credibility of Brazil’s spending cap – the country’s key fiscal anchor – has been seriously undermined by tweaks and workarounds since the start of the pandemic. And it looks likely that the cap will be weakened further after October’s presidential election (regardless of who wins) to allow a looser fiscal stance. While that would support domestic demand in the near term, it would also result in a higher country risk premium, a tight monetary stance and a weaker real.

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