(Bloomberg) -- The political noise that sent the Brazilian currency tumbling past 4 per dollar hasn’t changed You-Na Park’s bullish stance.
The Commerzbank analyst is sticking to her forecast that the real will strengthen to 3.60 per dollar by the end of the year, provided the government can deliver on its flagship pension overhaul bill. The optimism stands out considering the current backdrop, which she laid out in a Tuesday note: A chaotic government, political scandals and dwindling growth forecasts.
“The opinion that the reform is necessary to get the country back on track economically is likely to dominate among politicians,” Park wrote. “We therefore assume that the reform can be approved in the second half of the year and leave our real forecast unchanged.”
The Brazilian real slumped 3% this month, pacing losses in emerging-market currencies, as allegations of wrongdoing against one of President Jair Bolsonaro’s sons, protests against spending freezes and lower growth expectations raised concerns about the government’s ability to push through with the reform. It all came against an already wobbly backdrop for risky assets as U.S.-China tensions escalated.
Park says the reform negotiations are sluggish partially because Bolsonaro isn’t making the bill a top priority, leaving it up to Economy Minister Paulo Guedes. Though Guedes was one of the main reasons investors flocked to support Bolsonaro, he is in a weaker spot than the president to sell such an unpopular bill, according to Park.
“The new government is perceived as chaotic, and many ministers are politically inexperienced,” she wrote. “Political scandals have also contributed to this picture. All in all, these are unfavorable conditions for conducting complicated negotiations with other parties.”
Park was the second most accurate forecaster for the Brazilian real in the first quarter, according to Bloomberg rankings, behind JPMorgan’s Cassiana Fernandez, who sees the real at 3.90 per dollar by the end of the year. The median forecast of economists surveyed by Bloomberg stands between the top two forecasters, at 3.80 per dollar.
Read more: JPMorgan Says Brazil’s Real Pension Boost Limited by Weak Growth
Despite the jittery backdrop, optimism about the pension reform seems to be resurfacing of late. Political consultant Eurasia raised the odds of approval of the government’s flagship economic proposal to 80%, citing lawmakers’ waning resistance to a measure deemed vital to Brazil’s finances. Bank of America Merrill Lynch upgraded the nation’s sovereign bonds to overweight, saying it’s more confident the government can deliver an overhaul that would be deemed positive by investors.
“As long as there is still a good chance that the pension reform will be passed, depreciation pressure on the real is likely to be limited,” Park wrote. “The process is under way and there has been no sign of the reform failing.”
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