USD/BRL might struggle to ease below the 5.00 mark – Commerzbank

The conflict between the Brazilian government and the central bank is going into the next round. Thus, economists at Commerzbank expect the USD/BRL pair to stay above the 5.00 level.

The government is making the central bank’s task more difficult

“In the past, the Brazilian central bank contributed to the stability of the Brazilian real due to its determined fight against high rates of inflation, despite the fact that the government’s fiscal policy was often a thorn in the side of the financial markets. The course the government has recently taken is concerning in this context.”

“In effect, the government is making the central bank’s task more difficult. The significant fall in inflation could justify rate cuts, but the government’s demands make it almost impossible for the central bank to cut rates as it will not want to look as if it is giving in to the government’s demands. If the government had kept quiet that might have been a more successful strategy.”

“As long as the conflict between the two parties is brewing, BRL might struggle to ease below the 5.00 mark against USD on a sustainable basis.”