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BRAZIL: Substantial Adjustment to Selic Rate Expectations May Boost BRL

BRAZIL
  • Market participants had been eagerly awaiting an adjustment to 2024 year-end Selic rate expectations, and the wait is over with quite an impressive shift to the Focus survey’s median estimate. A bumper 75bp increase to 11.25% (2024 year-end), now tilts analysts firmly towards the expectation of an imminent hiking cycle, corroborating the most recent rhetoric from BCB officials (especially Galipolo and Guillen) and more reflective of the rising inflation and GDP expectations.
  • The Focus survey results add to the plethora of industry calls for higher rates in Brazil, with several firms expecting rate hikes as soon as the next meeting on September 18, despite the concurrent expectations of the Fed beginning to ease the same day.
  • Developments should provide upward pressure for front-end DI swap rates and combined with the more constructive price action for equities, the dynamics should provide support for the Real. USDBRL bullish trend conditions remain intact and supports of note reside at 5.5238, the 50-day EMA and the key level at 5.3768, the Aug 19 low.
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