Political instability and the cost of the risk premium in the Brazilian market

The recent escalation in electoral tensions, highlighted by the Liberal Party's (PL) direct criticism of the Social Democratic Party's (PSD) positioning, goes beyond partisan conflict and directly impacts risk pricing for Brazilian assets. When party leaders signal ideological alignments at the expense of pragmatic neutrality, the market interprets this as a sign of institutional instability, increasing the risk premium demanded by investors to allocate capital in the country. This phenomenon occurs at a time when predictability is the scarcest asset, making any political noise a catalyst for volatility in exchange rates and long-term interest rates. Commercial dollar reached R$ 5.2236, a 2.12% increase over the last 7 days. With the Selic rate held at 14.00% p.a., the opportunity cost of holding BRL positions rises. This is the seventh consecutive report pointing to institutional deterioration, signaling a liquidity contraction phase where capital migrates to the short end of the yield curve or the dollar. The real risk lies in policy paralysis, which hinders structural reforms and leaves the IPCA at 4.44% without definitive anchoring. Over the next 180 days, volatility is expected to persist if political tensions do not ease. Investors are advised to prioritize a margin of safety, diversifying into dollar-denominated assets or high-quality floating-rate fixed income to navigate this period of heightened uncertainty.