The Brazilian real edged up to 5.12 per US dollar in September after stronger-than-expected mid-month inflation data. Mid-month headline inflation accelerated to 4.47% year over year, up from 4.24% previously and above the 4.30% market consensus. Persistent inflationary pressures may limit room for further cuts in the Selic rate, as the 12-month inflation rate has moved back above the upper bound of the BCB’s target range. At its September meeting, the BCB lowered the policy rate by 25 bps to 13.75% and left future decisions open, while the Copom minutes struck a more hawkish tone than anticipated.
Externally, oil prices declined, easing some energy-related inflation pressures. Even so, the global backdrop remained challenging, with international yields climbing above recent historical ranges before pausing their rise in response to the oil correction. The US Federal Reserve raised its federal funds target rate at its latest meeting, and the narrowing interest-rate differential continues to provide support for the US dollar.
