Will Lula go on a pre-election spending spree?

The balance of probabilities is tilted towards Brazil avoiding major additional pre-election fiscal loosening (and the resulting backlash in financial markets). As a result, we think the Selic rate can fall a bit further this year than is currently implied by financial market pricing. But the bigger problem is the absence of a long-term fiscal anchor. And it’s unclear that the next administration, whoever wins the election, will address this.