USD/BRL: Real well positioned despite rate cuts – Commerzbank

FXStreet Insights Team FXStreet

The Brazilian Real is one of the outperformers in 2023. Economists at Commerzbank analyze BRL outlook ahead of the the Brazilian Central Bank (BCB) meeting.

Real could come under pressure again in the coming weeks if the market prices in further rate cuts

There is plenty of room for further rate cuts. Otherwise, the BCB would be keeping the real rate unnecessarily high and increasing the risk of putting too much pressure on the economy with an excessively tight monetary policy.

It is fully justified for the BCB to cut interest rates by a further 50 basis points to 11.75% today. And also to announce further rate cuts at the same pace if inflation does not accelerate again. In the short term, Real could come under pressure again in the coming weeks if the market prices in further rate cuts.

However, with a central bank that has demonstrated its ability to raise interest rates to very high levels if necessary to bring inflation under control, declining inflation and (currently) robust economic growth, the Real should be well positioned over the medium-term and downside potential should therefore be limited.

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FXStreet Insights Team

FXStreet

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