Brazil's “whatever it takes” moment, but will “it” be enough?
|Summary
Brazilian Central Bank (BCB) policymakers delivered a much-needed hawkish monetary policy adjustment at its December Copom meeting, all but explicitly saying they would not tolerate unanchored inflation expectations any longer. In addition to an outsized rate hike, policymakers signaled large rate hikes are to persist well into 2025. While aggressive rate hikes can offer near-term support to the currency, we maintain our view that the Brazilian real will weaken and underperform over the longer-term. Fiscal policy, not BCB monetary policy, in our view, will be the driving force of Brazilian real depreciation, especially as spending ramps up ahead of the 2026 presidential election.
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