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BCB Head Reiterates 12.75% Rate Should Be Enough To Contain Expectations

BRAZIL
  • Despite the latest BCB rhetoric surrounding the terminal Selic rate, the Brazilian Real continues to grind higher, prompting USDBRL to breach several significant technical support levels.
  • The pair cleared 4.9846 last Monday , the Mar 11 low and an important bear trigger. Wednesday’s sell-off resulted in a break of support at 4.8934, the Jun 25, 2021 low.
    • It is worth highlighting the weekly close below 4.8187, Jun 2020 low and low point of the broad range that has dominated since the peak in May 2020. This reinforces bearish conditions and also highlights a significant medium-term reversal.
  • Brazil’s central bank chief, Roberto Campos Neto, reiterated that a Selic benchmark rate of 12.75% should be enough to bring inflation expectations to target within a relevant horizon, according to a TV interview broadcast on Sunday.
    • Following up on comments made on Friday, the central bank governor reiterated that the BCB “have made quite a big adjustment that, in our view, is enough to bring inflation to target,” stressing that the effects of monetary tightening through rate hikes are usually felt after 12-18 months.
    • While Friday’s headlines explained that at the present moment a Selic rate hike in June is not the most probable outcome, Campos Neto repeated that the door is still open given uncertainties stemming from Russia’s invasion of Ukraine.
  • Brazil’s federal government plans to create the so-called Fundo Brasil with real estate assets worth approximately 1t reais, Economy Minister, Paulo Guedes, said without providing details during a ceremony in Brasilia.
    • Project will also be count on the government’s stakes in state-run companies, which are currently valued at 1t reais.
    • Government intends to set up a fund to eradicate poverty, according to the minister.
    • Brazil’s economic growth is about to take off, Guedes said, citing the BRL below 5/USD.
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