The Caiado Plan: Betting on fiscal adjustment as an antidote to exchange rate volatility

Ronaldo Caiado's government plan introduces a management shock proposal focused on fiscal discipline and spending cuts, aiming to signal responsibility amid pressure on Brazilian assets. With the commercial dollar reaching R$ 5.2236, up 2.12% in the last 7 days, the need for credible market anchors is urgent. The capital market demands proof of execution for structural reforms, especially with the Selic rate at 14.00% per annum, which severely constrains economic growth and household consumption. Despite the IPCA cooling to 4.44% in July 2026, the persistent dollar appreciation and fiscal uncertainty continue to weigh on foreign investor confidence. Without clear spending cuts, risk premiums will likely rise, increasing public debt costs. Following a series of negative headlines regarding the business environment and legal uncertainty, skepticism remains high. The current monetary tightening cycle limits private sector expansion, and the proposed fiscal adjustments must be balanced to avoid expanding the primary deficit. Looking ahead, the market expects tangible results; failure to secure legislative support could push the dollar above R$ 5.30, fueling inflation and further pressuring purchasing power. Investors are advised to prioritize value and a margin of safety during this period of high interest rates and political instability.