HALISTER1: Brazilian Real, DI Anticipating Govt Shift, Analysts Say

Brazilian Real, DI Anticipating Govt Shift, Analysts Say

(Bloomberg) -- Brazilian real’s recent gains reflect hopes of a political shift, opening room for BCB to cut rates as the stronger currency could help fight on inflation, analysts say.
  • NOTE: BRL +1.66% at 3.6935 vs USD, vs ~4.00 two weeks ago; DI rates drop, Jan 17 -21.5bp, 13.835%; curve shows increasing odds of rate cut
  • Signals that PMDB, biggest Rousseff ally, may withdraw its support for govt and protests expected for Sunday are leading market to bet on stronger BRL, Leonardo Monoli, director at investment firm Jive says in a phone interview
    • USD drop may help to improve CPI expectations; DI rates also drop after Valor reported that some BCB directors are already considering a cut, Monoli says
  • Alternative scenario of rate cut in 2Q-3Q has increased, Leonardo Sapienza, chief economist at Banco Votorantim says
    • Solution for political crisis could open room for a pro- reform government, which would ultimately be supportive for the currency
    • Basic scenario is still for on-hold policy as inflation forecasts remain above BCB’s targets
    • Bellow-est. CPI released today shows trend of lower prices increases; food prices increases are slowing, energy costs may rise 4% in 2016 from 51% in 2015, Sapienza says
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Leonardo Monoli (Jive Asset Gestao de Recursos Ltda)
Leonardo Sapienza (Banco Votorantim SA)

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