Further weakness is expected in BRL as the political situation only gets worse. The initiation of the impeachment process is a long road and only makes it more difficult to get a solution on the fiscal front. It adds more noise to the already troubled agenda of the Congress and will leave very little space to discuss and vote on fiscal measures and budget adjustment for next year.
Data wise, we will have on Wednesday the release of IPCA inflation. The forecast (0.92% m/m) reflects the upward trajectory of food prices captured by daily surveys, being the largest contribution to the headline inflation. The inflation scenario only makes COPOM's decision more difficult. The opinion is that it will be very difficult for the Central bank to hike in an environment where inflation expectations have been driven mainly by the fiscal situation and the economic growth is plummeting. Accordingly, the market prices a high probability of hikes at the next meetings.