The Brazilian Central Bank is likely to engage in a rate-cutting cycle, soon, according to reports published by the Commerzbank. The newly-elected Temer-led administration is likely to witness a snap in the continuous rally of the Brazilian Real (BRL) amid continuing interventions and risks of implementation that remains high for the new administration.
The BCB continue to intervene by auctioning reverse FX swaps and by so doing they reduce the size of their short USD forward position significantly, reports suggested. It seems worth paying attention to the raft of various Fed speakers who argue that the market is under pricing the possibility of the Fed raising rates over the remainder of this year. Should more prominent voting members of the FOMC say the same then the current BRL rally might not have much further to run.
“We think that active FX interventions combined with lower interest rates will lead to a modest BRL depreciation over the remainder of the year. From a rates perspective we continue to think that receiving front end IRS makes sense,” Commerzbank said in a report.
Perhaps the most encouraging sign from the new administration was the creation of an Investment Partnership program, which is mandated with executing infrastructure projects in Brazil. This should help to execute infrastructure projects more effectively and get control over the substantial bottlenecks which hold up major projects, the report mentioned.
The material has been provided by InstaForex Company – www.instaforex.com