After a difficult year-end, the Brazilian real improved in recent weeks. It started the year at about 6.5 BRL per euro and now stands near 6.2 BRL.
Renewed confidence comes from clear signs of recovery. PMI activity is improving. Retail sales are growing. Vehicle sales are at their highest since 2014. Capacity utilisation above 80% suggests a likely new investment in production capacity.
Political uncertainty ahead
Taken together, these factors have allowed investors to regain some of the confidence lost in December. However, the country is heading toward a presidential election in the autumn, and Flávio Bolsonaro has announced his candidacy for the office previously held by his father, former president Jair Bolsonaro.
This raises the prospect of another turbulent confrontation between President Lula and the Bolsonaro camp, further clouding the outlook for Brazilian economic policy.
Inflation and rate expectations
The latest data look reassuring. Inflation, above 5% for most of 2025, fell to 4.26% in December. This aligns with the central bank’s 3% target plus a tolerance band of ±1.5%.
Investors now anticipate policy rate cuts to revive credit and the economy.
However, the Brazilian market is highly volatile and best suited for investors with low risk aversion. For more information, see our complete investment portfolio strategy.