BCB Review: Maintaining the Course

January 30, 2025 6:09 PM UTC

The Brazilian Central Bank (BCB) raised the policy rate by 100bps to 13.25%, signaling another hike in March while monitoring economic data. The statement had a neutral-to-dovish tone, with inflation risks stemming from services CPI, unanchored expectations, and fiscal policy. Market projections see

BCB Preview: 100bps Hike Will Buy Some Time

January 27, 2025 7:09 PM UTC

The Brazilian Central Bank is expected to maintain its course with two 100bps hikes, reaching 14.25% by March. Inflation forecasts for 2025 exceed the target, necessitating a firm policy stance. Despite market concerns, new President Gabriel Galípoli is likely to act decisively. The Real’s recent

Brazil Risk Premia and EM Debt

January 20, 2025 8:15 AM UTC

Brazil debt market has two domestic crises rather than a spillover from the U.S. in the form of inflation and fiscal policy. Very restrictive BCB policy can help produce some disinflation and we forecast 4.1% for 2026, which some allow some rate cuts in H2. Brazil risk premium will likely be reduced

EM Government Debt: BRICS Divergence

January 2, 2025 8:05 AM UTC

   Brazil and South Africa suffer from debt servicing costs outstripping nominal GDP, which will remain a concern unless a consistent primary budget surplus is seen – though S Africa enjoys a much longer than average term to maturity than Brazil.  India and Indonesia, in contrast, enjoy nominal

EMFX Outlook: Hit From Tariffs, Before Divergence

December 20, 2024 10:00 AM UTC

·        EM currencies on a spot basis will remain on the defensive in H1 2025, as we see the U.S. threatening and then introducing tariffs on China imports – 30% against the current average of 20%. China’s response will likely include a Yuan (CNY) depreciation to the 7.65 area on USD/CN

LatAm Outlook: Economic Shifts

December 18, 2024 5:21 PM UTC

·       Brazil and Mexico economy are likely to decelerate in terms of growth in 2025, although we see this being stronger in Mexico. Mexico legal reforms and its close ties with U.S. increases uncertainty for 2025, especially after Trump elections, although we see tariffs in 2025 as unlikely

BCB Review: Shock 100bps Hike

December 12, 2024 10:12 AM UTC

The Brazilian Central Bank raised the policy rate by 100bps to 12.25%, with plans for two more 100bps hikes, reaching 14.25% by early 2025—the highest in 18 years. The decision reflects fiscal concerns, inflation risks, and a 10% depreciation of the Real. The BCB aims to curb inflation and protect

BCB Minutes: Hawkish and Indicating Hikes

November 12, 2024 2:49 PM UTC

The Brazilian Central Bank (BCB) remains hawkish, raising rates by 50 bps to 11.25% amid resilient domestic growth and unanchored inflation expectations. Key concerns include rising uncertainty in the fiscal landscape and exchange rate volatility, prompting cautious monetary policy. The BCB signals

BCB Review: Unanimous 50bps Hike

November 7, 2024 2:19 PM UTC

The Brazilian Central Bank raised its policy rate by 50 basis points to 11.25%, signaling heightened concerns over inflation risks driven by domestic dynamics and global uncertainties. While noting external volatility and fiscal policy impacts, the BCB emphasized that persistent inflation requires a

BCB Preview: 50bps Hike and More to Come

November 4, 2024 8:05 PM UTC

The Brazilian Central Bank (BCB) is expected to raise rates by 50bps in November to curb rising inflation, which could exceed the 4.5% upper limit if inflationary shocks persist. Market concerns focus on food prices, a strong labor market, and external exchange rate pressures. The new BCB President,

Brazil: High Expenditure Levels Challenge Fiscal Stability

October 25, 2024 5:40 PM UTC

Brazil’s fiscal data through August shows a primary deficit of 2.3% of GDP, with expenditure growth outpacing revenue gains despite efforts to increase government income. Social transfers and unemployment benefits contributed to rising expenditures, now at 20.2% of GDP. The Central Bank’s recent

Brazil: Demand and Imported Prices Lead Inflation Rise

October 17, 2024 6:33 PM UTC

Our updated model shows that stronger-than-expected demand and BRL depreciation are driving Brazil’s inflation higher, while supply remains stable. Despite recent rate hikes, inflation expectations have risen, loosening monetary policy. We expect the BCB to implement two more 50 bps hikes before p

Brazil: Quarterly Inflation Report Shows BCB Worries

October 1, 2024 2:10 PM UTC

The Brazilian Central Bank's latest report highlights stronger-than-expected economic growth of 1.4% in Q2 and a positive output gap, raising inflation risks. While non-core inflation decreased, core measures like services inflation remain sticky. Credit growth continues to be robust, but fiscal pol

EM FX Outlook: Fed Easing Helps but Divergent Trends

September 26, 2024 8:00 AM UTC

  USD strength is ebbing across the board, which provides a positive force for most EM currencies on a spot basis.  However, where inflation differentials are large, the downward pressure will remain in 2025 e.g. Turkish Lira (TRY).  Where inflation differentials are modest against the U.S., but

BCB Minutes: Adding Some Hawkishness to the Communique

September 25, 2024 1:44 PM UTC

The Brazilian Central Bank raised the policy rate by 25 bps to 10.75%, citing stronger-than-expected economic activity and deteriorating inflation expectations. The committee highlighted rising inflationary pressures, especially in wages and credit growth. While future rate hikes are likely, no forw

LatAm Outlook: Diverging Patterns

September 24, 2024 12:54 PM UTC

·       Brazil and Mexico started to diverge in terms of growth. While we see Brazil GDP growing above 3.0% in 2024 (pushed by the internal demand), we see Mexico’s growth decelerating to 1.3%, due to weaker demand from U.S. and contractionary monetary policy. In 2025, we see Brazil growing

BCB Review: Switching Back to Hikes

September 19, 2024 12:50 PM UTC

The Brazilian Central Bank (BCB) raised the policy rate to 10.75%, signaling more hikes due to domestic pressures, including stronger economic activity and de-anchored inflation expectations. Despite global uncertainties, the decision reflects concerns about Brazil's positive output gap and fragile

EM Markets Divergence with China Harder Landing Concerns

August 14, 2024 3:35 PM UTC

Global market turbulence has had a spillover impact into EM, but also some EM assets have benefitted from rotation away from the U.S.  What are the prospects in the coming months?
We see scope for a 2nd wave of U.S. equity and Japanese Yen (JPY) correction, which are a mixed influence for EM assets

BCB Minutes: Hawkish and Consideration over Hikes

August 6, 2024 2:55 PM UTC

The Brazilian Central Bank kept the policy rate at 10.5%, emphasizing a hawkish stance amidst global uncertainties and risk aversion. Inflation is projected at 3.2%, above the 3% target. The board remains cautious, with potential rate hikes if the economic situation worsens. A rate cut may be possib

Brazil CPI Preview: Inflation to Rise in July

August 5, 2024 3:13 PM UTC

The Brazilian CPI is expected to rise by 0.3% m/m in July, pushing Y/Y CPI to 4.4%. This increase is mainly due to higher gasoline prices affecting the Transport and Housing groups. Inflationary risks are emerging, with strong economic activity and sticky service inflation, but a policy rate cut rem

BCB Review: A Hawkish Tweak

August 1, 2024 1:45 PM UTC

The Brazilian Central Bank (BCB) kept the policy rate unchanged at 10.5%, with a hawkish tone highlighting risks. Strong domestic growth and employment data persist despite monetary tightening. Inflation expectations for 2024 and 2025 are at 4.1% and 4.0%, respectively, above the 3.0% target. Fiscal

Brazil: An Eye on the Lower Bound of the Fiscal Target

July 23, 2024 4:07 PM UTC

The Brazilian government will implement BRL 15 billion in contingency expenditures to meet fiscal targets, aiming for a 0.25% GDP primary deficit in 2024. This move, though addressing fiscal issues, pursues the lower target band and may undermine fiscal credibility. The contingency is due to revenue

EM After the Elections: Fiscal Focus and Inflation Questions

July 1, 2024 8:05 AM UTC

Enhancing fiscal credibility is key post-election in India and S Africa, but also for Brazil.  India, will do this in the 3 week of July, but S Africa needs to move from ANC/DA led coalition optimism to reality quickly. Brazil needs to stop the vicious circle of sentiment building up on fiscal slip

Brazil: Adoption of Continuous Targeting Means Not Much Change

June 27, 2024 1:28 PM UTC

The Brazilian government has revised the BCB's inflation targeting framework, effective January 2025, to a continuous target system. If inflation exceeds the target bands for six consecutive months, the BCB must explain the discrepancy. The 3.0% target with 1.5% bands remains unchanged, alleviating

BCB Minutes: Deterioration of the Scenario Requires Higher Rates

June 26, 2024 1:32 PM UTC

The Brazilian Central Bank maintained the SELIC rate at 10.5%, emphasizing a unanimous, hawkish stance on inflation. Markets question BCB's inflation control with upcoming leadership changes. External uncertainties, domestic consumption surprises, and rising inflation expectations were highlighted.

EMFX Outlook: USD Strength to Ebb with Different EM Impact

June 25, 2024 8:05 AM UTC

 We see Fed rate cuts from September starting to soften USD strength into year end and 2025.  Beneficiaries will include currencies with inflation moving towards target and high real rates or, alternatively, undervalued currencies. This should benefit the Brazilian Real (BRL) and Indonesian Rupiah

LatAm Outlook: Pausing the Cuts

June 24, 2024 6:00 PM UTC

·       Brazil and Mexico growth will decelerate from the growth rates in 2023. The stronger basis of comparisons in 2023 and the tight monetary policy will diminish growth during 2024. Brazil robust Agricultural growth will not repeat in 2023 while Mexico is on the limit of growing due to a

BCB Review: A Pause in the Cutting Cycle

June 19, 2024 10:17 PM UTC

The Brazilian Central Bank kept the policy rate at 10.5%, citing economic uncertainty and a need for caution. Inflation expectations for 2025 are 3.8%, above the 3.0% target. Political interference concerns persist, but the unanimous decision indicates a technical approach. The BRL's depreciation ma

BCB Preview: A Pause Amid the Risks

June 17, 2024 2:34 PM UTC

The Brazilian Central Bank (BCB) is expected to maintain the SELIC rate at 10.5% amid external sector volatility, stubborn service inflation, and deteriorating inflation expectations. A hawkish majority on the board suggests a pause despite potential for cuts. Risks include rising food prices post-f

BCB Minutes: Worsening Conditions Demand Caution

May 14, 2024 2:35 PM UTC

The Brazilian Central Bank's latest meeting revealed a shift in forward-guidance, reducing the cut from 50bps to 25bps. While no immediate actions were taken, the minutes highlighted worsening conditions in three key areas: External Environment, Fiscal, and Economic Activity. Despite split votes on

BCB Review: 25bps Cut, No Additional Guidance

May 9, 2024 1:11 PM UTC

The Brazilian Central Bank convened, opting against a 50bps cut, reducing it to 25bps, lowering the policy rate to 10.5%. A split vote ensued, with 25bps winning 5x4. The communique, vague possibly due to board division, noted labor market and economic activity surpassing expectations. Foreign marke

BCB Preview: 25bps or 50bps cut?

May 6, 2024 1:02 PM UTC

The Brazilian Central Bank (BCB) convenes on May 8 to set the policy rate. Previous forward guidance hinted at a 50bps cut in May, but recent statements from BCB President Roberto and some weakness in the BRL have shifted expectations to a 25bps cut. However, we anticipate the BCB maintaining a 50bp

EMFX: Diverging On Domestic Forces Not Less Fed Easing Hopes

May 3, 2024 10:45 AM UTC

While U.S. economic developments, plus Fed policy prospects, will be important in terms of EM currency developments, domestic politics and fundamentals will also be decisive. These can keep the South Africa Rand volatile in the remainder of 2024, given the risk of a coalition government and African

Moody’s Improves Outlook Perspective Due to Higher Growth

May 2, 2024 2:27 PM UTC

Moody’s upgraded Brazil's outlook to positive from stable, maintaining its Ba2 rating, signaling a potential move to Ba1 soon. Strong growth prospects, attributed to institutional reforms, drove this shift. Despite lingering doubts, improved fiscal conditions and anticipated tax reform are bolster

Brazil: Credit Decelerating Amid Tighter Conditions

April 26, 2024 1:21 PM UTC

Despite the BCB's initiation of the cutting cycle, credit is anticipated to decelerate due to monetary policy lags. Enterprises face the most significant impact, with nominal growth dropping to 4.1% in February from 12.1% a year prior. While household credit growth slows to 10.4% annually from 17%,

Brazil: Wage Inflation Will Likely Not Be a Big Deal

April 24, 2024 3:19 PM UTC

Our analysis delves into recent trends in the Brazilian labor market, focusing on CPI and wage inflation. Utilizing a model akin to Ghomi et al. (2024) and Blanchard and Bernanke (2023), we dissect recent spikes in wage inflation and CPI growth. Notably, our findings suggest that recent wage spikes

Brazil: Revision of Targets Shows the Weakness of the New Fiscal Framework

April 18, 2024 1:39 PM UTC

The Brazilian government has revised its budget targets for 2025 and 2026, lowering the deficit to 0% and a 0.25% surplus in 2025 and 2026 respectively, from 0.5% surplus in 2025 and 1% in 2026. However, reliance on revenue increases poses challenges amid resistance from Congress. Despite reduced ta

Brazil: What About the Fiscal?

April 3, 2024 2:31 PM UTC

In 2023, Brazil witnessed a significant fiscal decline, with the GDP surplus of 0.5% in 2022 turning into a 2.1% deficit, surpassing the targeted 0.5% deficit set by the new fiscal rule. Despite measures aimed at reinstating fiscal sustainability, immediate adjustments are unlikely. The deterioratio

Brazil: Inflation Report Points to a Scenario Too Good for the BCB Board to Believe it

March 28, 2024 2:20 PM UTC

The Brazilian Central Bank's Quarterly Inflation Report reflects uncertainty over disinflation and emphasizes caution in monetary policy. Despite slower expected disinflation and inflationary surprises in certain sectors, the BCB projects optimism with inflation nearing target. Labor market data sho

BCB Minutes: Doors Opens to Diminish the Cuts Pace in June

March 26, 2024 1:11 PM UTC

The Brazilian Central Bank has released the minutes of their last minutes. The minutes highlighted the uncertainty, labour market pressures and unanchored expectations. They decided to reduce the horizon of the 50bps ace to the May meeting which indicates a prospective reduction to diminish the pace

EM FX Outlook: Domestic Drivers Key

March 26, 2024 9:01 AM UTC

   In terms of spot EM FX projections domestic drivers remain critical, with a desire to avoid appreciation versus the USD for some countries.  Fed easing in H2 2024 should however help EMFX more broadly and allow some recovery in spot rates (e.g. Indonesian Rupiah (IDR), South African Rand (ZAR)

LatAm Outlook: Getting Deeper in the Cutting Cycle

March 22, 2024 7:04 PM UTC

·       Brazil and Mexico growth will decelerate from the growth rates seen in 2023. The stronger basis of comparisons in 2023 and the tight monetary policy will diminish growth during 2024. Brazil robust agricultural growth will not repeat in 2024, while Mexico growth is restrained by a tigh

BCB Review: Forward Guidance Kept but Chance to be Taken Out Soon

March 21, 2024 12:50 PM UTC

The Central Bank (BCB) slashed the policy rate by 50bps to 10.75%, with further cuts anticipated. Medium-term easing hinges on inflation dynamics and economic factors. The BCB's forward guidance suggests a potential shift in communication and cut magnitude by June, changing the cut pace to 25bps fro

BCB Preview: 50bps Cut and Softer Forward Guidance

March 18, 2024 4:48 PM UTC

The Brazilian Central Bank is anticipated to cut the policy rate by 50bps, reaching 10.75%, amidst easing inflation and cautious market sentiment. The recent surge in food prices raises concerns, while the BCB is expected to abandon its usual forward guidance in favor of more data-driven decisions.

Brazil CPI Preview: 0.7% in February will likely be only a Transitory Problem

March 8, 2024 8:56 PM UTC

IBGE will release February's CPI data on Mar. 12, forecasting a 0.7% increase, driven mainly by education and food sectors. While some rises may persist, they're not indicative of a general price surge. Despite a 0.7% rise, Y/Y CPI is expected to drop to 4.4%, aligning with BCB targets. Forecasts su

February 28, 2024 2:51 PM UTC

The Brazilian GDP is anticipated to have contracted by 0.1% in Q4 2023, yet the annual growth for 2023 is expected at 3.1%, marking the third consecutive year above the 3.0% threshold. Agricultural sector's significant 15% growth, primarily driven by soybean harvest, offsets the deceleration. Tight

EMFX: Carry and Domestic Fundamentals Rather Than the USD

February 22, 2024 10:00 AM UTC

Bottom Line: Most major EMFX currencies have performed better than the Euro or the Japanese Yen against the USD in 2024 (Figure 1).  This is due to carry trades in Latam, but elsewhere reflects global equity love on Indian equities or domestic fundamentals.  This resilience for Brazilian Real/Indi

BCB Minutes: Caution within the Easing Cycle

February 6, 2024 1:22 PM UTC

The BCB released minutes detailing the 50bps cut to SELIC, shedding light on monitored risks. Despite a unanimous vote, differences in language emerged, especially regarding variables. Notably, new government-appointed members were present. Internationally, the board noted minimal impact from Fed de

BCB Review: 50Bps Cut Maintained

February 1, 2024 2:36 PM UTC

The Brazilian Central Bank (BCB) maintained a widely expected 50bps cut in the policy rate, bringing it down to 11.25% from 11.75%. The BCB's neutral communique highlighted caution in emerging economies amid global monetary tightening. The domestic scenario, aligned with contractionary policies, saw