Brazil currency and rates tumble, stocks jump on dovish central bank
- Benchmark Selic rate by 50 basis points to 5.50%, highlighting tame domestic inflation and an increasingly uncertain global economic outlook.
- The dollar rose to a two-week high just shy of 4.14 reais , and the benchmark Bovespa stock market rose 1.4% to 106,001 points to within 650 points.
BRASILIA: Brazil's currency and market-based interest rates fell sharply on Thursday while stocks rallied, after the central bank slashed borrowing costs to an all-time low and signaled it was prepared to do so again in the coming months.
The central bank on Wednesday reduced its benchmark Selic rate by 50 basis points to 5.50%, highlighting tame domestic inflation and an increasingly uncertain global economic outlook.
Citing the accompanying statement from the bank's rate-setting committee, known as Copom, several economists lowered their Selic forecasts. A fall below 5.00% is now on the cards, perhaps even by the end of this year, they said.
"With ... significant downward revisions in the projected path for inflation, the authority seems to reveal a bolder flight plan in terms of new stimuli ahead," Rabobank strategists Mauricio Oreng and Gabriel Santin wrote in a note.
"We now look for two more rate cuts of 50bp for the next Copom meetings, with Selic ending the year at 4.50%."
Brazilian markets shifted in that direction early Thursday.
The dollar rose to a two-week high just shy of 4.14 reais , and the benchmark Bovespa stock market rose 1.4% to 106,001 points to within 650 points of the record high reached on July 10.
Interest rate futures across the curve plunged to all-time lows. The January 2021 contract, the second-most traded after January 2020, fell the most in almost a year, sliding 25 basis points to 4.97%.
Implied rates point to further central bank easing of around 75 basis points by the middle of next year, and the Selic rate not getting back up to its current 5.50% level for around two years.
Economists at Barclays and Banco Safra were among those who lowered their Selic forecasts too.
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