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Commerzbank Say August Cut Looking More Likely

BRAZIL
  • Commerzbank have noted the showdown between the administration and the BCB is getting closer. Gabriel Galipolo, BCB board member-designate, yesterday confirmed discussions within the government about adjusting the inflation target, although he and Simone Tebet, seemed to play down the significance of these discussions.
  • In June, the planning minister, finance minister and central bank governor will meet to set the inflation target for 2026. BCB governor Campos Neto has recently repeatedly warned against changes, stressing that they would not widen the current scope for rate cuts.
  • Commerz also see the discussions as a potentially destabilizing factor for BRL. The real depreciated again yesterday after further inflation indicators signalled a faster decline in inflation. As a result, the August meeting of the BCB is looking more and more like the date for a first rate cut. At the same time, the Fed's rate cut expectations are being pushed further into the future. No wonder the USD-BRL exchange rate is trending higher.
  • However, if discussions about inflation targeting leave even the slightest doubt that the government is trying to influence monetary policy in this way, BRL weakness could quickly take on much greater proportions.
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