As the prospects of a possible Donald Trump victory weaken the Brazilian real against the US dollar, central bank’s nine-member board likely to have few clues about election outcome when they vote on the country’s interest rate.
And ahead of November 5, the day of the election in the US, the polls that show the race between Trump and Vice President Kamala Harris are practically tied, and the final results could not be known for days.
The monetary authority of Latin America’s largest economy will hold its next rate-setting meeting on November 5-6 and announce its decision late on November 6, one day before the US Federal Reserve sets its own borrowing costs.
What the strategists of the neighboring country analyze
“The committee will have no signals coming from the Fed’s decision and the election, which may force it to be more incisive in conducting monetary policy,” said Daniel Cunha, chief strategist at BGC Liquidity. “There is a very reasonable possibility that they will have to discuss a 75 basis point increase,” Cunha added.
Brazil’s central bank began a monetary tightening cycle in September, when it raised its benchmark Selic rate by 25 basis points to 10.75% to address a challenging inflation outlook driven by stronger-than-expected economic activity.
It is now widely expected to accelerate its pace of tightening next month, with the local interest rate curve pricing a 90% probability of a 50 basis point rise to 11.25%. The remaining 10% point to an increase of 75 basis points.
The possibility that former Republican President Trump will defeat Democrat Harris in the November 5 vote and return to power next year is hitting Brazil’s financial markets.
The Brazilian real weakened from 5.44 per dollar in late September to 5.73 per dollar this week, with market participants citing both local fiscal concerns and Trump’s chances of victory as reasons behind the decline.
The effects of the real’s depreciation on inflation in Brazil are one of the factors the central bank will monitor closely ahead of its November meeting. “We have seen the exchange rate come under more pressure each time the possibility of a Trump victory appears more prominent.largely due to their import surcharge proposals,” said Leonel Mattos, market intelligence analyst at StoneX.
Trump has said he would impose tariffs of 10% or 20% on all imports and 60% or more on Chinese imports, a plan Harris has described as a tax on American consumers.
“That is negative for Brazilian exports, since the US is the country’s second trading partner,” said Mattos. “If it exports less to the US, Brazil will also get fewer dollars, which tends to weaken the real.”
Source: Ambito
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