Central Banks

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Banco Central do Brasil​ hiked its benchmark interest rate by 75bp to 4.25% as expected. The Brazilian central bank indicated it may repeat the action next meeting. Earlier in the day the US Federal Reserve left rates unchanged.

Brazil Real

Highlights via Reuters:

  • sees continued normalization of policy at next meeting
  • sees another policy adjustment of the same magnitude at the next meeting
  • deteriorating inflation expectations may require a more forceful reduction of monetary stimulus
  • base-case scenario is for normalisation of policy towards neutral rate
  • a rate hike at next meeting depends on the evolution of economic activity, the balance of risks, inflation expectations
  • future monetary policy steps may be adjusted to ensure compliance with inflation goals
  • accompanying current inflation shocks and their potential secondary effects
  • adjustment towards neutral rate necessary to "mitigate the dissemination of the temporary shocks to inflation"
  • decision was unanimous
  • persistence of inflationary pressure more intense than expected
  • outlook for electricity rates keeping inflation under pressure in the short run

What is interesting with  this uncertainty about the economic and political future of Brazil is not putting pressure on the Brazilian stock market as you would suspect. This suggests the positive market sentiment through commodities such as oil and risk on coupled with credible monetary policy are supporting BRL.

Clearly infation is the primary concern for the Banque de Brasil and that would need altered conditions to change that as they indicated.

From The TradersCommunity News Desk

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