This comes against the backdrop of an alarming public health crisis. In addition, the consensus among economists holds that while the central bank's rate-setting committee, known as Copom, has started its tightening cycle aggressively, the end point for interest rates has probably not changed much, if at all. The central bank's own forecasts on Wednesday had it ending the year at 5.0%, well above its official goal of 3.75%. Inflation is running at 5.2% and heading for over 7% in the middle of the year before subsiding.
The medium-term outlook, however, may be less certain.Īlthough Brazil's central bank jacked up official borrowing costs by 75 basis points to 2.75% and said it will probably do so again in May, real interest rates will still be negative for some time, and therefore relatively unappealing to investors. Strategists at global FX power-houses Citi and Barclays are among those recommending buying the real, via derivatives markets, on the belief that it will strengthen against the dollar over the coming weeks, and maybe even months. interest rates should also keep the dollar in check, providing another layer of support for emerging-market currencies. Federal Open Market Committee on Wednesday that it is in no rush to raise U.S. The central bank's aggressive start to its tightening cycle, coming on the heels of its recent burst of foreign exchange market interventions, will put a floor under the real in the near term, analysts say. BRASILIA, March 18 (Reuters) - Brazil’s real, one of the world’s worst-performing currencies this year, is set to get a shot in the arm from the central bank’s stronger-than-expected interest rate hike on Wednesday and pledge of a second dose in May.
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