Brazilian Real Best Year Since 2016 with Interest Rates at 13.75%

The Brazilian Real at $5.3 closed up more than 6% in 2022 supported by a series of interest rate hikes by the central bank and an upbeat growth outlook. Banco Central do Brasil​ aggressively hiked its benchmark interest rate to 13.75% in twelve consecutive interest rate hikes since 2021 when the bank began its current tightening cycle early last year, the Selic was at a record low 2%. The lending rate is now at its highest level since 2017. The central bank estimates the exchange rate starts at USD/BRL 5.20* and evolves according to the purchasing power parity (PPP).

Inflation is a major issue in Brazil. Brazil’s annual inflation rate eased to 5.9% in November 2022 from its April peak of 12.1% on the rate hikes. The Brazilian real was introduced in 1994 to replace the cruzeiro, which had been the currency of Brazil since 1942. The real was created in an effort to stabilize the Brazilian economy and reduce hyperinflation.

Brazil’s jobless rate has fallen to the lowest since December 2015 in a labor market recovery described by the central bank as “stronger than expected.” The Central Bank of Brazil has taken a number of measures to try to stabilize the value of the real, including raising interest rates and intervening in the foreign exchange market.

Brazil got a boost in the first half of 2022 from skyrocketing commodity prices, which, combined with attractive interest rates, supercharged existing upward momentum. Upside momentum wavered with concerns about Brazil’s public finances as President-elect Luiz Inacio Lula da Silva promised to spend more on the economy and social welfare following his election victory in October.

From The TradersCommunity Research Desk