The currency may extend declines because of the prospect for further, more aggressive rate reductions.
In our view this outcome is positive for Serra was seen by the markets as a micro manager. Someone who is an efficient administrator but who is also -- rightly or wrongly -- perceived as very interventionist.
Within the central bank, the number of those confident over the prospects of slowing inflation is growing. This is good news for the interest rate and growth scenario.
The market has the perception that the economic policies will continue.
I believe that Brazil will meet its target for the primary budget surplus in 2006. However, it's normal that in an electoral year the government will lift its expenses, reducing the surplus in the second half.
The market is eyeing government figures very attentively and will do so even more in coming months. If we don't see a reversal starting in June, it's going to start to be a concern.
People trading in emerging markets are excited. This should reinforce the trend of appreciation we have seen in the currency and further improve Brazil's debt profile.
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