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The Brazilian real extends its gains after a promise of a “ sharp ” rate hike

(Bloomberg) – Find out what drives the global economy and what it means for policymakers, businesses, investors and you with The New Economy Daily. The Brazilian real rose after the central bank raised its benchmark rate by 75 basis points and promised another hike of the same size next month in a further push to bring inflation back on target. 12:43 p.m. in New York, among the top performers in emerging markets. Real leads to gains among major currencies over the past month, up 5.9% amid rising commodity prices, and analysts say central bank move paves the way for more of earnings. in a Bloomberg survey and the guidance given by policymakers at their previous meeting in March. If it keeps its promise, the bank will have increased its borrowing costs by 225 basis points to 4.25% by June. “This more hawkish statement should bring short-term strength to the BRL,” wrote Rabobank economists Mauricio Une and Gabriel Santos. a note. “We had thought they wouldn’t signal the next leg of the hike now.” They expect the central bank to raise rates to 5.5% by the end of the year and 6.5% in 2022.The bank, led by its chairman Roberto Campos Neto, is acting to contain inflation that has exceeded the four-year high target cap. Food and fuel costs have jumped in recent months and the government recently relaunched emergency aid which will strengthen demand. Together, analysts see consumer prices above target this year and next amid a nascent recovery. What Bloomberg Economics Says: “The central bank tried to come to a compromise: it promised another steep 75 basis point rate hike at the next meeting, but warned it is not yet ready to go. fully normalize monetary policy. While acknowledging the decline in core inflation and mentioning – for the very first time – its dual tenure, we believe the overall tone of the statement was somewhat belligerent. “- Adriana Dupita, Economist for Latin America Scope to gain after BCB bullish signal: in Brazil” They are continuing the hawkish trend, “said Sacha Tihanyi, head of emerging markets strategy at TD Securities in Toronto . “Increase aggressively earlier, then create some breathing space for the real.” The central bank also stressed that “partial normalization of the policy rate remains appropriate to maintain some degree of monetary stimulus during economic recovery.” This suggests that they don’t. Don’t see the key rate climb in this cycle to a neutral level which is typically pegged around 5.5% -6.5%. “However, the Committee stresses that there is no commitment with this plan and that future monetary policy steps could be adjusted to ensure the achievement of the inflation target,” the officials wrote in the press release. The swap rate curve fell 4 to 8 basis points, flattening after low open volatility. Traders stuck to their bet that the central bank will hike rates an additional 275 basis points by the end of the year, which would take the benchmark to 6.25%. BNP Paribas on Thursday revised its forecast for the Selic to 6.5% from 5%, saying rising inflation would lead officials to hike rates more than expected. in the same law that gave the bank its long-sought formal autonomy at the start of this year. Still, they offered a positive outlook, saying recent economic indicators were better than expected despite the pandemic, and predicting that uncertainties over growth would gradually return to normal. Last month, President Jair Bolsonaro’s administration began. to pay another round of monthly allowances at full cost. of 44 billion reais (8.2 billion dollars). Lawmakers recently indicated they would ask for an extension of this aid if the government does not speed up plans for a new social program as the coronavirus continues to spread across the country. of the year until mid-April, and many economists see that reading approaching 8% in May. The central bank is targeting annual inflation of 3.75% this year, with a tolerance range of plus or minus 1.5 percentage points. In their statement, policymakers wrote that various measures of core inflation are already at the top of the range compatible with achieving their goal. To complicate matters, commodity prices continue to rise and higher energy costs put pressure on prices in the short term. change his mind, ”said David Beker, chief economist for Brazil at Bank of America Corp. (Updates asset performance in second and 10th paragraphs, adds analyst commentary in fourth paragraph.) For more articles like this, please visit us at bloomberg.com to keep a length of advance with the most reliable source of business news. © 2021 Bloomberg LP

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