“The scenario, marked by the resilience of activity, pressures in the labor market, the positive production gap, upward inflation projections and unanchored expectations, requires a more restrictive monetary policy“, the Monetary Policy Committee (Copom) said in a statement.
It was about the First increase in Brazilian rates since August 2022Until two months ago, the BCB had recorded seven consecutive declines in the yield of its currency, the real.
The policy shift comes amid rising consumption and inflation expectations. In August, the year-on-year price index in South America’s largest country slowed to 4.24%, but the figure is still far from the 3% target.
In addition, Most analysts expect further increases in food prices in the coming months due to the droughtwhile unemployment is the lowest it has been in the last ten years.
“In real terms, the Selic, now at 6% annually, has also been more positive, although on few occasions.“If we look at the peaks of both spreads and real rates, we see that these coincide with moments of inflationary acceleration,” said Deplhos Investment.
The BCB, contrary to the Fed
In this way, the decision of the Brazilian central bank goes against the measures taken by the US Federal Reserve. During the session on Wednesday The Fed cut its rates by 50 basis points, which was the first cut in four years.
The Fed’s decision confirmed what most analysts expected, in a context in which The US labor market is showing some signs of weakness and inflation is falling back to pre-pandemic levels.
This could cause a Greater capital flows into risk assets and emerging marketsamong which are the Brazilian and Argentine markets
How does the rate hike in Brazil impact Argentina?
The rate hike in Brazil could generate a appreciation of the realwhich would be favorable for emerging currencies and would help reduce the pressure on dollar quotes in Argentina.
“We tend to think that the strong tightening of monetary policy in Brazil should contribute to the appreciation of the real, while subsequent cuts by the Fed will possibly pressure the resumption of the rate cut process by the BCB. In this scenario, the Carry trade bets on this currency will be boosted againeven more so considering that Brazil already has the most attractive volatility-adjusted rate in the region,” Delphos noted.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
