Extensions In Local Swap Rates, IPCA Inflation Due

BRAZIL - Extensions of most recent moves saw local swap rates up nearly 40 basis points across the curve yesterday at their highest point. Pressure eased later in the session but still closed between 10-26 bps higher.

*Brazil's central bank offered $500 million in FX swaps, stalling the rally in USDBRL and showing they are prepared to act when the BRL significantly underperforms peers. Despite trading down to 5.47, the pair inched higher to close above 5.50 for the first time since November 5^th. Notable move in BRLMXN that appears to have broken support through 3.6750/6800

*Markets have been pricing a degree of budget creativity that seems inevitable in the near future. Continued scepticism surrounding austerity pledges from candidates for the role of speaker of the Lower House, appears to be keeping the curve under pressure regardless of the race developments.

*Fractions between President Bolsonaro and allies alongside other parties may also delay the reform agenda. Tactical political positioning may take precedent with 2022 elections in mind, keeping the trajectory for local assets uncertain.

Today we have IPCA inflation data which will be important for the Central Bank before their next meeting on January 20^th.

• 12-Jan 1200/0700 Brazil Dec. IBGE Inflation IPCA m/m expected 1.21% vs 0.89% prior
• 12-Jan 1200/0700 Brazil Dec. IBGE Inflation IPCA y/y expected 4.37% vs 4.31% prior