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Commerzbank See Longer-Term Risks to BRL

BRAZIL
  • Commerzbank write that for the time being, USD/BRL should trade around current levels, however they see BRL depreciation risks returning over the longer-term.
  • They write that USD/BRL has already reached their target of 4.95 and should remain around this level, supported by attractive real interest rates. However, they are concerned that the government could increase its influence on monetary policy which could lead to a renewed weakening of the real. So far, all the government has done is verbally attack the BCB, but the relationship is fragile. The next showdown will come in June, when the inflation target will be under review.
  • Commerzbank fear that the BCB will move closer to the government's line when Neto's term ends at the end of 2024. This is likely to weigh on the BRL.
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