Economists at CIBC Capital Markets expect the USD/BRL pair to move back higher in the coming months.
BCB to maintain the current pace of rate cuts in December
Given President Lula’s comments suggesting expenditures will not be cut to meet the new 2024 fiscal target, we expect USD/BRL to resume its upward path towards 5.10, and on a break above that level, retest the 5.20 mark in line with our year-end forecast.
As for the Selic rate, we expect the BCB to maintain the current pace of rate cuts in December, bringing it to 11.75% by the end of 2023 and another 50 bps rate cut in the first meeting of 2024, after which we expect the BCB to adjust its forward guidance (likely a slower pace of rate cuts as fiscal risks materialize/persist).