Brazil to Increase Key Interest Rate

Analysts expect Brazil’s central bank to increase the benchmark interest rate as the country tightens monetary controls, with several more increases in the pipeline.

Market watchers expect rake hikes in March and May, with interest rates expected to hit a whopping 12.25%. The new estimate stems from minutes of Brazil’s latest central bank meeting in which it signaled the tightening measures could be “more restrictive.” 

The minutes referenced uncertainty around commodity prices as a contributing factor to the upcoming measures. As the world’s largest exporter of sugar and coffee, and a major player in the global soya bean, iron ore and steel trades, Brazil’s economic fortunes are inextricably linked to commodity prices.

Brazil, like many other global economies, is dealing with persistent inflationary pressure. With annual inflation sitting at 10.40% for January, and consumer price increases already at 3.50% for the year, Brazil’s policy makers feel they must act. 

What does this mean for me? 

If you are just getting into the markets, what will strike you from watching events of the last six months is how similar the economic challenges faced by large and small economies are.

Inflation has been the recurring theme of the past few months, fueled by pandemic-induced supply-chain shortages and the prohibitive cost of energy. Consumer prices have been high, leading to elevated inflation, thus forcing central banks to cool it by increasing interest rates.

Brazil has been no different. As a bonds trader, stay alert for new bond issues related to emerging markets like Brazil where yields will be high. Also, you can keep an eye on how Brazil’s currency reacts to uncertain commodity prices.