USD/BRL to trade up to 5.40 as political headwinds are growing for the Real – ING

The Brazilian Real has been steady against the Dollar. However, the USD/BRL is set to move higher as politicians may increase their pressure on the Brazilian central bank, economists at ING report.

When politics and central banking collide

“Politicians are keen for the central bank to start cutting interest rates. However, in its most recent update, the central bank has warned about long-run inflation expectations increasingly moving away from target – clearly at odds with calls for rate cuts.”

“With core rates so high, we doubt investors will have too much patience for this kind of friction and we would favour further under-performance of the Real.”

“Were the politicians to increase their pressure on the Brazilian central bank – then USD/BRL could trade up to 5.40.”