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ING See USDBRL Staying Gently Offered On Back Of 25bp BCB Cut

BRAZIL
  • ING note that the BCB is widely expected to cut its Selic rate by 25bp to 10.50% today, breaking the trend of six consecutive 50bp rate cuts since last summer. Despite managing expectations for another 50bp reduction when it last met in March, the BCB Governor has since felt the need to need to communicate the greater chance of a 25bp cut today because of a more difficult environment both home and abroad.
  • Domestically, the BCB remains concerned about fiscal slippage from the government, a factor to which BRL normally reacts poorly. Yet despite the government recently revising down its fiscal surplus targets for 2025 and 2026, ING note that BRL has actually been performing quite well. Commodity prices have been moving in the real’s favour and the recent decline in volatility, the search for carry and softer dollar have all helped.
  • In quiet markets, ING think USDBRL can probably stay gently offered on the back of a 25bp cut today. USDBRL could continue to press 5.05, potentially even the 5.00 area were the BCB to sound a little less dovish. However, there are still some economists thinking that the BCB could push ahead with a 50bp cut today. That would probably prove a bearish surprise for the real.
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