Momentum for Brazilian Real buyers continues.  Since the beginning of the month, Latin America’s fastest growing economy’s currency has shown a lot of resilience to the current recessionary conditions plaguing the country  - appreciating by a strong 8%.  But, the good times maybe coming to an end given recent comments by central banker Alexandre Tombini – with the currency trading at 1.7215 against the US dollar.

Speaking in Mumbai earlier in the session, Brazilian Central Bank President Alexandre Tombini noted that the Brazilian economy had been subject to subpar growth over the last two years.  The softening of growth has helped to reduce the pace of consumer inflation in the country – which is currently running at a pace of 6.5% year over year.  The subdued pace of inflation and rather weak pace of growth has left policymakers with “room to reduce rates” even as the central bank continues to work towards further reductions to consumer prices.

Money markets are taking the threats to heart, pulling back on bets of a rather stable benchmark Selic rate at 10.5% – where the rate currently stands.  Now, it seems, central bankers are expected to reduce rates further by another 100 basis points, bringing the rate to 9.5% at the end of the year.  The benchmark rate has been reduced significantly in the past couple of months – in order to boost economic growth in combination with domestic tax cuts.

Should central bankers enact further rate cuts, it may be an impetus for currently long real investors to take to temporary exits.  The possibility grows as the currency – against the US dollar – approaches a key resistance level at 1.7200.