28.04.202617:05:07UTC+00Brazilian Real Strengthens Ahead of Selic Decision

The Brazilian real strengthened to 4.98 per USD, near its strongest level in two years, supported by expectations of higher foreign exchange inflows and a restrictive monetary stance from the Central Bank of Brazil. The ongoing conflict between Iran and the US has disrupted oil shipments from the Middle East, pushing up global energy prices and boosting FX inflows for alternative energy exporters such as Brazil. Rising energy costs also drove headline inflation up to 4.4% in the first half of April, nearing the central bank’s upper target limit of 4.5%.

A slim majority of market participants expects the BCB to deliver a 25 bps rate cut this week, although the bank’s warnings about the risk of inflation expectations becoming unanchored have reinforced bets on a pause instead. Even so, the still-elevated Selic rate of 14.75% has preserved the appeal of carry trades, continuing to lend support to the real.