Brazilian assets are likely to deteriorate further. Brazil's macroeconomic picture deteriorated substantially and its government is unable to address the fiscal situation.

Political maneuver lacks in Brazil on the spening cuts and reforms. Slower growth and high interest burden caused tax rate erosion, which signals that debt/GDP is not going to stabilize in near future.

"Risk premium is likely to remain elevated as markets could assign a higher probability of monetization, although it is not our base case scenario. We recommend entering into long USD/BRL spot (ref: 3.79, target: 4.24, stop: 3.61)", says Barclays in a research note. 

BCB might not go for a hike in this situation where fiscal issues drive a decline in expectations on market based inflation.