Brazil’s central bank, BCB, aggressively raised rates by 100 basis points to 12.25% last night and promised two additional hikes of similar magnitude, notes Chris Turner, FX analyst at ING.
USD/BRL may return to 5.80/85 today
“The phrase ‘ahead of the curve’ seems appropriate here, as the BCB sends a strong signal that rising inflation expectations will not be tolerated. Additionally, the BCB announced a $4 billion foreign exchange auction today to provide liquidity to the spot market. This aggressive move could take USD/BRL back to 5.80/85 today.”
“However, this aggressive rate hike is entirely due to the Lula administration’s lax fiscal policy and the damage it has caused to the exchange rate. Unless a credible fiscal consolidation package is announced, the BRL will remain vulnerable “
“Our position is that fiscal consolidation will be difficult in the run-up to the 2026 presidential election, and combined with the new US administration’s trade war with China – and the threat of secondary sanctions on Brazil – the USD /BRL will probably head towards the 6.25 zone.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
