USDBRL Rises On Rate Cut
The USDBRL exchange rate rose during the session ahead of a widely expected rate cut by Brazil’s central bank. Jumping from intraday support at 1.7588, the USDBRL currency pair ended the session at 1.7667, or about 0.44% on the day.
Released at the beginning of the Asian session, Banco Central do Brasil announced that the benchmark Selic rate would be lowered by 50 basis points to 11.50%. The move was widely anticipated by the market as central bankers and other government officials had highlighted the recent weakness in Brazilian economic fundamentals. In particular, consumer demand has fallen the most since the first quarter of 2009. The decline in demand is being coupled with slower than expected output – which has fallen in three of the last five months.
However, the decision comes to a surprise to some, considering the rate of consumer inflation that continues to plague one of Latin America’s hottest economies. Consumer prices continue to remain at the upper limit of the central bank’s mandate of 6.5%. September consumer inflation rose by 7.31% on an annualized basis.
Nonetheless, interest rate traders continue to see a more dovish central bank in the months to come – one that is relying on lower consumption rates to support a decline in consumer prices. Expectations continue to remain of at least another 125 basis points to be cut from the Selic rate through till Q2 next year.