Now the central bank of Brazil – Commerzbank – also intervenes

Friday was an interesting day for the Brazilian real. It started with the news that the Brazilian Central Bank (BCB) intervened in the spot market to the tune of USD 1.5 billion to support the Brazilian real. The reason given by the acting governor Campos Neto was that the intervention was done to offset the effects of the regular rebalancing of the MSCI index. This is expected to lead to BRL outflows this month, notes Michael Pfister, FX strategist at Commerzbank.

BСB confuses market players

“We remain skeptical that BCB is sending the right signal. Almost as if to make it clear that there is no fundamental reason for the intervention. The head of the central bank tried to surprise market expectations on Friday by stressing that any rate hikes would be “gradual”. Expectations have come to life in recent months. The market is now pricing in about 100 basis points of rate hikes over the next three months, with more hikes to follow.”

“There was more budget news on Friday, although not many details have been released yet, but it appears that policymakers are focused on raising revenue rather than cutting spending. This has caused some concern in the market. While the details of the budget plan remain to be seen, there are concerns that the authorities will not use the new budget to secure the market, but rather to deliver a plan that is not yet fully developed.”

“The BCB later announced that it was offering additional foreign exchange in its regular swap auction to sell an additional USD 1.5 billion and support the BRL. It was not entirely clear whether the swap auction was planned all along and intended to run alongside the original spot action, or whether it was announced at short notice to capture the renewed depreciation of the BRL in response to Neto’s comments and the budget. clues.”