Brazilian economic rebound remains shaky, central bank likely to further cut rate in May

Brazil’s retail sales data released yesterday showed again how unstable the nation’s economic recovery is after two years of recession. Sales dropped 1.9 percent sequentially in March. After the inflation print released on Wednesday, the Brazilian economy gives another reason for the BCB to further lower its key interest rate.

The strong BRL gives the necessary pre-condition. The Brazilian real was not impacted by the data publication and the prospect of an additional 100 basis point rate cut at the end of May, noted Commerzbank in a research report.

This is expected to remain the case for now, unless the positive market confidence changes. In that case, the Central Bank of Brazil might pull the plug and be warier with its rate decisions so as to curtail the damage to the real, added Commerzbank.