The Brazilian real appreciated toward 5.21 per US dollar, rebounding from a five-week low as safe-haven demand for the greenback subsided. With external pressures easing, domestic fundamentals have come back into focus. The upside inflation surprise on February 27 — a 0.84% monthly increase that lifted annual inflation to 4.44%, near the 4.5% upper band — strengthened expectations that the Central Bank of Brazil will maintain a restrictive policy stance.
While quarterly GDP stagnated at 0.1% and softer industrial investment initially dampened sentiment, the Selic rate at 15% still provides one of the most attractive real yields worldwide. On the external front, Brazil’s $4.34 billion trade surplus and a 36% year-on-year jump in agricultural exports to China further bolster the country’s position. As a result, markets have dialed back expectations for a 50 basis point cut at the March 18 Copom meeting, shifting toward a “higher for longer” rate scenario that supports the BRL.
