The rise in the benchmark Selic interest rate for the first time in over two years also comes in the face of the Federal Reserve’s larger-than-usual 50-bps cut in U.S. interest rates andprojections of another half-a-percentage-point cut by year-end.
“Many market participants anticipated this move, but some believe it could be more symbolic, helping to boost confidence in the BCB’s (Banco Central do Brasil’s) commitment to inflation control,” said Albie Manderson, FX risk manager at Deaglo.
This widens the interest rate differential between Brazil and the U.S., likely supporting the real by attracting capital inflows and easing inflationary pressures through lower import prices.
