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The Brazilian real is not expected to witness further gains from the current levels, with a cautious stance on the currency, according to the latest research report from Commerzbank.
The Brazilian central bank’s meeting minutes suggest that it still considers the risks for inflation to be pointing upwards. However, in particular following the election of Jair Bolsonaro and the positive market reaction (i.e. BRL appreciation) it considers these risks to be lower than at its last meeting.
Today’s inflation publication is likely to illustrate that it is too early for it to lean back and relax though. A small rise from 4.5 percent y/y to 4.7 percent is expected. Since the lorry driver strike in the spring inflation has been close to the target of 4.5 percent, the report added.
However, inflation is likely to have peaked so that the central bank is likely to keep rates on hold due to the weak economy.
At least as long as there are no negative surprises on the political front, that could put BRL under depreciation pressure. The market has arranged itself with Bolsonaro as President and Bolsonaro seems to want to please the markets.
