Brazil votes today in the tightest presidential runoff in its modern history, and the rates market’s interest is narrow: which fiscal programme walks into the Copom meeting on November 3 to 4. Nearly 160 million voters are eligible, voting is compulsory between 18 and 70, and the electronic count begins when polls close at 17:00 Brasilia time, with a result expected within hours. Flavio Bolsonaro, the Liberal Party senator and eldest son of former president Jair Bolsonaro, won the first round on October 4 with 47.03 percent against President Lula’s 45.16 percent. Final polls show a statistical tie: Datafolha puts each candidate at 50 percent of valid votes, and a CNT/MDA survey released Saturday gave Bolsonaro 46.3 percent to Lula’s 45.0 percent, within the margin of error. No candidate who finished second in the first round has won a Brazilian runoff since direct elections returned in 1989.
The fiscal contrast is the transmission channel. Bolsonaro campaigned on cutting government spending while maintaining social programmes. Lula closed the campaign by expanding them, including a 15 percent increase in the Bolsa Familia programme and approval of the 40-hour working week. About 33 million voters who stayed away in the first round, roughly 21 percent of the electorate, are the pool both campaigns spent Saturday trying to move, at rallies in Rio de Janeiro, Sao Paulo and Belo Horizonte.
The central bank’s position was set out in Friday’s data, covered in yesterday’s edition. The IPCA-15 index rose 0.32 percent in the month to mid-October, below forecasts, but the 12-month rate of 4.62 percent sits above the 4.5 percent ceiling of the target band, with the Selic rate at 13.75 percent after five consecutive 25 basis point cuts. Pantheon’s Andres Abadia told Reuters the runoff is an important risk because fiscal credibility remains a concern. That is the whole rates story of this election: a soft monthly print argues for another cut on November 3, and the identity and fiscal stance of the president-elect, known tonight, decides how much of that argument the Copom can use.