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Commerzbank On BCB - Remain Sceptical On BRL Due To Fiscal Risks

BRAZIL
  • With an inflation rate of currently 10.5% at least real interest rates are no longer in negative territory, so that a slowing of the rate hike speed would be justified.
  • However, the recent rise in energy prices entails the risk of inflation expectations rising. The inflation expectations amongst the economists polled weekly by the BCB suddenly rocketed from 5.7% to 6.5% this week.
  • If the BCB were to “only” hike its key rate by 100bp as expected today it is likely to at least accompany this step with hawkish comments.
  • That means that monetary policy will remain a supportive factor for the BRL so that it is less susceptible to increased risk aversion. However, principally Commerzbank remain sceptical regarding BRL due to (fiscal) policy risks.

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