Brazilian financial markets showed that many traders are still betting that the central bank will start a cycle of rate cuts in August, even as some economists discount it based on the tone of the bank’s latest policy statement, according to “reuters”.
The central bank kept its benchmark interest rate at a six-year high and took a more dovish tone about its next steps, while refraining from giving a clear signal about the next rate-setting meeting in early August.
Short-term interest rate futures rose, but still reflected most bets leaning towards a first rate cut of 25 basis points in August.
the central bank’s rate-setting committee removed hawkish references such as mentioning a possible rate hike, but called for ‘patience and serenity’ and said upcoming data would be key to its decision in August, according to its policy statement
This approach sparked fresh criticism from President Luiz Inacio Lula da Silva, who described it as ‘illogical’ for the central bank to keep interest rates so high while inflation has fallen sharply.
Lula expressed his frustration while traveling in Italy, noting that central bank chief Roberto Campos Neto, who was appointed by former president Jair Bolsonaro, poses a threat to the Brazilian economy.
Campos Neto, who has consistently argued that central bank decisions are based on economic principles rather than politics, is expected to remain in office until 2024 under the status of formal independence of the central bank.
