Commerzbank’s Norman Liebke notes that markets expect a further 25 bps cut from the Brazilian Central Bank (BCB), but real rates would remain highly restrictive near 9.4%. With inflation and expectations at the top of target, Iran-related energy risks, and resilient growth, he sees little room for aggressive easing and limited near-term impact on the Brazilian Real (BRL).

Restrictive rates curb Real reaction

"While a rate cut today would not come as a surprise given current expectations, it would not mean there is much room for further rate cuts. After all, there are also good reasons not to lower interest rates significantly further: For instance, BCB President Galípolo recently expressed caution regarding current inflation and inflation expectations."

"According to Galípolo, this combination of a strong economy and high inflation could lead to the key interest rate being kept at a restrictive level for longer. However, he did not specify exactly how high that restrictive level is."

"This could, at least for the time being, be the last rate cut for the coming months, until there is greater certainty. Based on the BCB Focus survey published two days ago, participants generally expect a benchmark interest rate of 13.75% by year-end - meaning only one more rate cut."

"However, rate hikes are also unlikely to be on the horizon, as the real interest rate is simply too high. In short: For the time being, the real is unlikely to see much impact from Brazilian monetary policy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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