USD/BRL: Real to suffer if BCB postpones rate cuts due to ongoing criticism of the government – Commerzbank

The Brazilian Real declined substantially after the minutes of the last meeting of the Brazilian central bank (Banco Central do Brasil, BCB) on Tuesday took a surprisingly more dovish tone than the original statement after the meeting had suggested. Economists at Commerzbank analyze BRL's outlook.

Real could avoid pressure if today's meeting were to pass off without a hitch

For the sake of confidence in the central bank's independence and thus in credible inflation control, it would certainly be best if today's meeting were to pass off without a hitch. Then, given the still very attractive real interest rate level of over 9%, the start of rate cuts would probably not put undue pressure on the Real.

On the other hand, if there is even the slightest suspicion that the BCB might postpone the start of rate cuts due to the ongoing criticism of the government, this is likely to weigh on the BRL. A foretaste of this was provided by the Real's reaction to the minutes, which some commentators interpreted as an attempt to defuse criticism of the government following the hawkish statement after the rate decision.