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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.
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Free AccessMNI WATCH: Copom Set To Accelerate Hiking Pace To 50BPS
The Central Bank of Brazil (BCB) is expected to accelerate the pace of its rate hikes, raising the official Selic rate by 50 basis points to 11.25% Wednesday amid a worsening inflation outlook driven by fiscal risks and significant currency depreciation.
The real has recently faced extreme volatility, reaching its lowest level since May 2020 at USD5.87 Friday, down from around 5.45 at the beginning of October.
The BCB is also worried about rising inflation expectations, even in the long term. According to the Focus market survey, economists’ forecasts for 2024 are at 4.59%, up from 4.38% a month ago, above the 1.5 percentage point tolerance limit for the 3% target. For 2025, the forecast has increased to 4.03% from 3.97%, and for 2026 to 3.61% from 3.60%.
Former BCB Deputy Governor for Economic Policy Fabio Kanczuk told MNI in an interview that he expects the BCB to accelerate its hiking pace to 50 basis point increments at upcoming meetings, although political pressures may prevent it from raising rates sufficiently to control inflation next year. (See MNI INTERVIEW: BCB To Up Pace In Short Hiking Cycle - Kanczuk)
Luiz Fernando Figueiredo, another former BCB deputy governor for monetary policy, also told MNI that the Copom could opt for a larger half-point rate increase, given the hawkish tone of its latest policy statement. (See MNI INTERVIEW: BCB To Step Up Hiking Pace In Nov.-Figueiredo)
In September, the Monetary Policy Committee (Copom) raised the Selic rate by 25 basis points to 10.75%, marking the first hike since August 2022 after keeping rates steady for two consecutive meetings, following nearly a year of aggressive easing.
FX VOLATILITY
Investors are awaiting the Ministry of Finance's announcement of government spending cut measures against the backdrop of rapid currency swings.
Minister Fernando Haddad canceled a trip to Europe to remain in Brazil this week to discuss the package with President Luiz Inácio Lula da Silva and the real strengthened Monday, trading at USD5.78, with expectations of the measures being announced soon.
The foreign exchange market was also impacted by concerns surrounding the United States election on Tuesday. (See MNI: Latam Policymakers Concerned About US Elections at IMF)
The Brazilian government has room to freeze an additional BRL 20 billion in expenditures from its 2024 budget if necessary, on top of the BRL 13.3 billion blocked two weeks ago, Planning and Budget Ministry Executive Secretary Gustavo Guimaraes told MNI last month. (See MNI INTERVIEW: More Brazil Budget Freezes If Needed -Guimaraes)
To read the full story
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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.