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Brazilian central bank likely to further lower interest rate

The Brazilian central bank is set to meet for its interest rate decision. There are reasons for the central bank to further lower the interest rate, but there are also reasons for a pause, noted Commerzbank in a research report. Moderate inflation is indicating towards a rate cut; at 2.8 percent it stayed lower than the central bank’s target corridor of 3 percent to 6 percent in February.

The Central Bank of Brail is surprised about the continued moderate inflation levels. Because of the gradual economic rebound, that is expected to remain the case, stated Commerzbank. The pension reform, which has been put on ice for now, indicates toward a pause though.

In its monetary policy statements, the BCB had always referred to the significance of political reform for the long-term inflation development. Meanwhile, the Brazilian real hardly indicated any reaction to the news that a decision on the pension reform, that is vital for fiscal consolidation, was going to be postponed indefinitely. The reform is not entirely off the agenda yet and might be put back on track after the Presidential elections in October. That signifies that despite the fact that at its last meeting in early February the central bank hinted at a rate pause it might use the opportunity and lower interest rates again due to the favorable framework conditions.

“The decision is unlikely to put notable pressure on BRL as the central bank has gained a high degree of credibility over the past years”, added Commerzbank.

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