USD/BRL: Real weakness could hasten if government tries to influence monetary policy – Commerzbank
31.05.2023, 14:41

USD/BRL: Real weakness could hasten if government tries to influence monetary policy – Commerzbank

The Brazilian Real depreciated again yesterday after further inflation indicators signaled a faster decline in inflation. The showdown between the Brazilian government and the central bank (Banco Central do Brasil, BCB) is getting closer. Economists at Commerzbank analyze its implication for the USD/BRL pair. 

August meeting of the BCB is looking more and more like the date for a first rate cut

“In June, the planning minister, finance minister and central bank governor will meet to set the inflation target for 2026. BCB governor Campos Neto has recently repeatedly warned against changes, stressing that they would not widen the current scope for rate cuts.”

“We also see the discussions as a potentially destabilizing factor for the Brazilian Real. The August meeting of the BCB is looking more and more like the date for a first rate cut. At the same time, the Fed's rate cut expectations are being pushed further into the future. No wonder the USD/BRL exchange rate is trending higher.”

“However, if discussions about inflation targeting leave even the slightest doubt that the government is trying to influence monetary policy in this way, BRL weakness could quickly take on much greater proportions.”

 

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