In Brazil, the central bank should start cutting rates today. Economists at ING analyze BRL outlook.
Brazil set to start its easing cycle
The only question it seems for the market is whether the BCB will kick off the cycle with a 25 bps or 50 bps cut.
The interest rates market already prices close to 500 bps of easing over the next year – so may not drop too much further – but we think the Brazilian Real may not need to sell off too harshly. After all, real interest rates remain hugely in positive territory and a recent sovereign rating upgrade – and lower volatility – suggest the BRL will continue to be a recipient of carry trade flow.
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