BRL: Plenty of space for BCB intervention – TDS

According to Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, the BCB (Central Bank of Brazil) will continue intervene in the spot market should it detect real economy-driven USD supply/demand imbalances.

Key Quotes

“The central bank maintains plenty of firepower to judiciously use reserves for intervention on behalf of current account-driven USD needs, but is unlikely to intervene consistently to prevent overall weakness in the real, given the very low inflation pass-through risk.”

“We forecast that the BCB will taper the pace of monetary easing to 25bp increments, so as not to unduly "spook" the market, particularly given the increased relationship between BRL weakness and the USD-BRL yield differential.”