FX.co ★ Brazilian Real Eases After BCB

The Brazilian real recently depreciated beyond 5.6 per USD in March, retreating from its peak since November 2024. This movement comes in response to the Central Bank's assertive monetary policy stance and its forward guidance, which now suggest further interest rate hikes beyond the recent 100 basis point lift, bringing the rate to 14.25%. This increase is aimed at controlling inflation but has sparked concerns about potential constraints on economic growth. Investors are apprehensive that the anticipated 50 basis point rate hikes in May and June could drive the terminal Selic rate up to 15.25%. Such a scenario is likely to tighten credit conditions, limit productive investment opportunities, and contract domestic industry. This expectation of a sustained tightening cycle, combined with rising inflation forecasts (estimated at 5.7% for 2025 and 4.5% for 2026) and uncertainties in global trade—particularly concerning U.S. policy—has diminished risk appetite. Consequently, this has prompted capital outflows and exerted downward pressure on the Brazilian currency.