The Brazilian central bank is set to meet later today. According to a Commerzbank research report, the central bank is expected to keep its key interest rate on hold again. Inflation dropped surprisingly sharply to 4.1 percent in November. In all, inflationary pressure has eased in recent months. Moreover, the Brazilian real appreciated considerably against the USD after the election of Jair Bolsonaro as the new president in October.
In this respect, the central bank can lean back a little longer and keep the key interest rate stable. The first rate hike is unlikely to take place until the second half of 2019, said Commerzbank. Nevertheless, should the Brazilian real come under considerable pressure again, the central bank could be compelled to act earlier.
For the Brazilian real, this signifies that the central bank would remain a significant pillar due to its credible monetary policy, but political developments under the new government, which would be in office from 1 January, and external factors are expected to stay key drivers.
“Against this background, we do not see any upside potential for the time being since it remains to be seen whether Bolsonaro can really deliver what the markets expect”, added Commerzbank.
