Strong rate hikes in Brazil managed to moderate inflation, reflecting a 0.68% drop in consumer prices in July, and push the real higher. In this sense, the Brazilian currency has risen by more than 8% against the dollar over the past 20 days, from 5.50 reais to 5.08 reais per dollar.
Added to this factor is the global dollar depreciation of 1.4%, after figures for a slowdown in inflation in the United States turned more positive than expected. Latin American currencies, led by the Chilean peso, Colombian peso, Peruvian peso and Mexican peso, followed a similar path to the Brazilian real.
Emiliano Anselmi, Head of Macroeconomics at Portfolio Personal Inversions, said: “Brazil’s Central Bank maintained a very firm stance, raising the monetary policy rate from 13.25% to 13.75% after price inflation is expected to be 7.1%. Return This rate in July encourages investors to take carry trade positions, which is why capital enters to “make the rate” and the currency appreciates. Also, Bolsonaro’s correction in the polls, which is known as the market The market reads as pro, generating more appreciation.
EcoLatina economic analyst Santiago Manoukian highlighted that, although the real is leading the trend, “most emerging currencies have seen appreciation.” “Globally the fear of runaway inflation has subsided. The strong depreciation of real during June was linked to the acceleration of inflation in the US and a sharp hike in Fed rates. The inflation surprise in July is significant, where the market is already discounting lower growth than previously forecast from the data, and it is a less hawkish Fed expectation.”
Along these lines, given the recent correlation between the CCL dollar and the real, it is worth asking whether an appreciation of the Brazilian currency will calm the price of the fiscal dollar in the short term. In this context, the CCL fell 15.8% from its July 27 peak, although it fluctuated in the last week.
At this point, Manoukian explained: “The dollar doesn’t always align with the trajectory of the real. Beyond the positive correlation we’ve seen in recent months, if we exit very short periods, it looks like they have.” There is a “passive” correlation. If Brazil depreciates, the CCL tends to increase. Now, when Brazil appreciates, it doesn’t always depreciate the CCL.”
For his part, Anselmi recognized that “it is true that the CCL moves in conjunction with the Brazilian real, so the movement contributed.” And he added: “Added is the Massa effect, which caused the virtual disappearance of the institutional crisis landscape to drop the CCL from $340 to $290; and the sharp rise in interest rates from the Treasury and BCRA in recent weeks, which As a result a better Badler rate and devices connected to this rate”.
Economist Martin Calvera concurred, who noted that “the dynamics of the CCL react to a number of factors, such as raising rates nationally, and BCRA regulatory measures, such as limits on ceders.” However, he warned that “everything is transient in an economy with chronic inflation and unresolved macroeconomic imbalances, which calls for greater intensification of instruments to influence monetary and financial markets.”