Political Instability and Institutional Uncertainty: The Risk to Market Confidence

Using the lens of credit and liquidity cycles, we perceive that Brazil is going through a phase of deceleration in attracting direct investments, where risk appetite is limited by distrust in the management of the national agenda. Capital movement is sensitive to presidential rhetoric and the quality of the debate, as institutional investors price in the cost of a potential populist pivot or the abandonment of fiscal commitments. Liquidity, essential for credit expansion, retracts as uncertainty increases, forcing real interest rates to remain at elevated levels to compensate for country risk, which currently reflects a defensive market posture regarding the domestic scenario.

The risks for the coming months are tangible: with the Selic rate fixed at 14.00% per year, any negative oscillation in institutional confidence could lead to capital flight, pushing the exchange rate above R$ 5.30 in the next 90 days. Data analysis suggests that as long as the political agenda is dominated by misogynistic attacks and populism, the margin of maneuver for GDP growth will be limited by a risk premium that increases the cost of capital for companies listed on B3. The lack of focus on economic stability, in turn, erodes consumer confidence, which already feels the pressure of service and food inflation.

For the 180-day horizon, we project that volatility will continue as the main market driver, requiring redoubled caution. The 30-day scenario indicates stagnation in foreign investment flows, while the 90-day scenario points to a possible revision of growth projections if the political climate shows no signs of easing. With the IPCA running close to the target, but under constant threat of unanchoring via uncompensated public spending, investors must monitor the correlation between executive rhetoric and the behavior of fixed-rate bonds, which are usually the first thermometer of institutional distrust.