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BRAZIL: Analyst Views On Local Rates

BRAZIL
EM BulletBulletGlobalEmerging Market NewsRegion
  • BofA: The level of rates is too high given the level of inflation. In BofA’s view, Brazil has less of an inflation problem than the market thinks. Too many hikes are being priced. They expect only 125bp of additional rate hikes and keep their Jan29 DI receiver to express this view.
  • Commerzbank: Expectations of rate hikes are now quite far advanced, with rates expected to rise by almost 220bp over the next 12 months, which would not be very far below the recent peak in the interest rate cycle. By comparison, inflation was more than twice as high at the last rate peak in August 2022. In Commerzbank’s view, it seems rather unlikely that interest rates will rise that far. They expect a few moderate rate hikes, followed by a wait-and-see approach to see whether this degree of tightness is sufficient to bring inflation under control.
    • Nonetheless, Commerzbank says that this does not necessarily have to lead to higher USD-BRL in the short-term, given their expectations for further USD weakness and very solid growth prospects in Brazil, which will delay pricing in of a lower rate path. They believe BRL should benefit from this backdrop until the end of the year.
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  • BofA: The level of rates is too high given the level of inflation. In BofA’s view, Brazil has less of an inflation problem than the market thinks. Too many hikes are being priced. They expect only 125bp of additional rate hikes and keep their Jan29 DI receiver to express this view.
  • Commerzbank: Expectations of rate hikes are now quite far advanced, with rates expected to rise by almost 220bp over the next 12 months, which would not be very far below the recent peak in the interest rate cycle. By comparison, inflation was more than twice as high at the last rate peak in August 2022. In Commerzbank’s view, it seems rather unlikely that interest rates will rise that far. They expect a few moderate rate hikes, followed by a wait-and-see approach to see whether this degree of tightness is sufficient to bring inflation under control.
    • Nonetheless, Commerzbank says that this does not necessarily have to lead to higher USD-BRL in the short-term, given their expectations for further USD weakness and very solid growth prospects in Brazil, which will delay pricing in of a lower rate path. They believe BRL should benefit from this backdrop until the end of the year.