By Luana Maria Benedito
SAO PAULO (Reuters) – The dollar fell sharply against the real on Thursday, reaching a low of 5.44 reais in the session’s lows amid rising expectations that the central bank will tighten the pace of its monetary tightening due to domestic inflationary pressures.
At 9:49, the dollar retreated 0.91%, to 5.4526 reais on sale, after reaching 5.4440 reais in the day’s low, down 1.06%.
The main dollar futures contract was down 0.80% to 5.4670 reais.
This Thursday’s move comes after the eve of the real having outperformed some of its major emerging peers, despite the international soaring of the dollar in the wake of stronger-than-expected inflation data from the United States .
Investors attributed the Brazilian currency’s recent resilience to expectations that the Central Bank may step up its current rate of interest rate hikes, as domestic producer price data continue to surprise upwards.
On Wednesday, the IBGE reported that the Extended National Consumer Price Index (IPCA) rose 1.25% in October, after rising 1.16% in the previous month, reaching the largest change for the month since 2002 (1 .31%). In 12 months, the increase was 10.67%, the strongest result since January 2016 (+10.71%).
“Our assessment is that the Central Bank needs to accelerate monetary policy adjustment to avoid completely losing control over expectations, which already signal a loss of the inflation target in 2022”, said Genial Investimentos in a note.
The inflation target for next year is 3.5%, with a tolerance margin of 1 percentage point upwards or downwards. The Selic rate is currently at 7.75% per year, after the BC’s Monetary Policy Committee (Copom) raised 150 basis points at its last meeting.
Higher interest rates tend to make the domestic fixed income market more attractive, consequently increasing demand for the real.
Investors are also keeping an eye on the news around the PEC dos Precatórios. The leader of the government in the Senate, Fernando Bezerra Coelho (MDB-PE), who will be in charge of reporting the proposal at the House, said he believes there are chances of senators maintaining the text approved by the Chamber. He did not rule out, however, that it could be improved.
Approved in the second round by the Chamber on Tuesday, the Proposal for Amendment to the Constitution (PEC) modifies the rule for payment of court orders – government debts whose payment was determined by the Court – and alters the deadline for correction of the spending ceiling by the IPCA .
In a report this Thursday, Bradesco said that “the approval of the PEC dos Precatórios in the Chamber removed part of the uncertainties of the fiscal scenario, even with the continuation of the proposal in the Senate, which also helps to explain the dynamics of local markets, especially interest curve and exchange rate.”
In the futures interest market, the rates of the main DIs hovered around the stability in the curve until January 2027.
On the eve, the spot dollar closed up 0.21%, at 5.5024 reais on sale.
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