Brazil is mulling an early review of inflation goals to boost them, according to Bloomberg

Reaction details (14:29)

• Brazilian swap rates have been moving higher in a steepener in reaction to the news, while USD/BRL has risen from c. 5.19 to recent highs of 5.2350 over the space of ten minutes, and in the broader context, a big reversal from sub-5.00 levels being printed a week ago, where Real strength had been supported by the BCB's hawkish offset to the new, fiscally-loose Lula administration.

Analysis details (14:22)

• Lula has suggested in recent interviews that monetary policy has become too restrictive and that the target should be raised.


• The targets had been scheduled to be reviewed in June where the National Monetary Council (CNM) would provide the 2026 target; CNM members include BCB Chief Neto, Economy Minister Haddad, and Minister of Planning Tebet.


• It was reported in Folha on Tuesday that BCB Chief Neto may be fired for failing to meet inflation targets and having competence questioned by the Lula government.


• BCB has failed to achieve its inflation target for two years, with headline Y/Y running at 10.06% in December vs the 3.75% target.


• Inflation expectations see the IPCA index at 5.8% at year-end (target 3.25%), 3.9% in 2024 (target 3.0%), 3.5% long-term (target 3%).

09 Feb 2023 - 14:18- ForexImportant- Source: Bloomberg