Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI BCB Preview - July 2024
Executive Summary
- On-going fiscal pressures and political noise have continued to weigh on Brazilian assets, prompting analysts to expect no more Selic rate adjustments this year, while financial markets are pricing in rate hikes through H2.
- Given the further gradual increase in inflation and inflation expectations, the Copom is widely expected to keep the Selic rate at 10.50% for a second successive meeting.
- Markets will remain sensitive to the vote spit and forward guidance, ahead of President Lula’s anticipated appointment of the next BCB Governor in the coming weeks.
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MNI BCB Preview - July 2024.pdf
Fiscal Concerns, Political Tensions Weigh On BRL
Concerns over the government’s ability to meet its fiscal targets have weighed on local markets in recent weeks, with BRL and local rates continuing to underperform. BCB President Campos Neto acknowledged that the main risk Brazil faces is on the fiscal side and that fiscal sustainability is key for price stability and reducing interest rates, adding that adjustments through revenue increases instead of expenditure cuts are less efficient.
In addition to the well-known fiscal risks, the ongoing spat between President Lula and Campos Neto has ramped up the pressure on the real. Lula has continued to argue that interest rates in Brazil cannot continue at these high levels, especially given the current level of inflation, and that the country needs the central bank’s help, saying that Governor Campos Neto acts without autonomy.
The pressure on BRL briefly raised talk of possible BCB intervention, something that Finance Minister Haddad touched upon. However, Campos Neto downplayed such concerns, saying that the central bank will only intervene in the FX market amid market disfunction, adding that the recent economic deterioration, characterised by higher inflation expectations and a weaker currency, was mostly driven by political noise.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.