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29 May 2013
Flash: Brazil expected to hike rates - BBH
FXstreet.com (Barcelona) - Brown Brothers Harriman EM Strategist Ilan Solot notes that the Brazil central bank meets Wednesday, and consensus is a 25 bp hike to 7.75%.
He adds that Brazil will also report May IGP-M wholesale inflation and Q1 GDP on Wednesday, followed by April budget data on Friday. He comments that consensus for GDP growth is a pick up to 2.3% y/y from 1.4% y/y in Q4. Further, fiscal policy has been loosened even as inflation remains at the top of the 2.5-6.5% target range. He sees that this has fed into some calls for a 50 bp hike this week, including us (please see our “COPOM Preview” sent earlier today). He finishes by writing, “USD/BRL traded at a new high for the year above 2.06 today, and we do not think policymakers are unhappy with this bout of currency weakness. So far, the central bank has not come in with swaps to protect the 1.95-2.05 range, suggesting that it may not be in effect if the range is broken due to widespread dollar gains.”
He adds that Brazil will also report May IGP-M wholesale inflation and Q1 GDP on Wednesday, followed by April budget data on Friday. He comments that consensus for GDP growth is a pick up to 2.3% y/y from 1.4% y/y in Q4. Further, fiscal policy has been loosened even as inflation remains at the top of the 2.5-6.5% target range. He sees that this has fed into some calls for a 50 bp hike this week, including us (please see our “COPOM Preview” sent earlier today). He finishes by writing, “USD/BRL traded at a new high for the year above 2.06 today, and we do not think policymakers are unhappy with this bout of currency weakness. So far, the central bank has not come in with swaps to protect the 1.95-2.05 range, suggesting that it may not be in effect if the range is broken due to widespread dollar gains.”