Brazil’s real hits one-year high on hawkish Central Bank minutes

RIO DE JANEIRO, BRAZIL – Brazil’s real hit a one-year high as minutes of the Central Bank’s recent meeting suggested a more hawkish stance than previously thought.

The real surged nearly 1% to a one-year high of R$4.970, as central bank minutes showed a 100-basis point hike in the benchmark interest rate could be coming at the next meeting to keep inflation in check.

This would be the monetary authority’s fourth straight hike and would put rates at 5.25%, their highest since October 2019, well before the Covid-19 pandemic spurred a cutting cycle.

Liam Spillane, head of EM debt at Aviva Investors, said in an interview he sees an upside in Brazil’s real and said its recent outperformance could continue at this level as bank policy should support the currency in coming months.

The dollar retreated after Federal Reserve Chair Jerome Powell flagged weakness in the job market, which is likely to keep the Fed from hiking rates anytime soon. He also expressed his confidence in inflation remaining transitory.

Powell’s comments somewhat soothed emerging markets, which had come under pressure from the Fed’s hawkish tilt last week.