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At its last monetary policy meeting this year, the Brazilian central bank should cut its key interest rate by a further 50 bp to 4.5%. This was announced quite clearly in the statement of its last meeting at the end of October. Neither the latest GDP publication nor the inflation data for November provide any reason for the central bank to change its stance. And the fact that the central bank is willing to relax its monetary policy despite its interventions in the currency market (in order to support the BRL) had already been demonstrated in the summer.
In this respect, the focus at today's meeting will be on the statement in which there could be indications as to whether the cycle has ended with today's rate cut or whether further easing is imminent in the new year. After GDP data surprised positively in the third quarter and inflation is likely to pick up again somewhat in the coming months, we expect unchanged interest rates next year. Should the central bank leave the door open for interest rate cuts, this should weigh on the BRL.
However, the trade conflict between China and the US and today's Fed meeting will of course allow external factors to keep the upper hand.
We remain OW BRL and local rates in the Model Portfolio and recently opened 3m/1m 1x2 BRL calls 4.2768/4.0675 (spot reference: 4.1185 levels). Courtesy: Commerzbank
