Brazil’s fiscal risks and narrowing interest rate differentials drive Rabobank’s bearish BRL forecast despite recent currency strength.
The Brazilian real (BRL) appreciated 0.48% last week to 5.0587 per USD, ranking among the top emerging-market performers. Rabobank attributes this to disinflation and a tight labor market but warns of headwinds ahead.
June’s fiscal data showed a primary deficit of BRL 48.2 billion, slightly worse than market expectations of BRL 48.0 billion. While revenue growth remained strong, the deficit underscores fiscal fragility, particularly in an election year. July’s IPCA-15 inflation print also came in below forecasts.
Rabobank projects the BRL will weaken to 5.35 per USD by year-end, citing a narrower interest rate differential with developed markets in 2026 and a potential global USD recovery. The bank’s outlook reflects concerns over Brazil’s fiscal backdrop and external pressures.