BRASILIA: Brazil’s real surged to a one-year high against the dollar on Wednesday, as the prospect of another aggressive interest rate hike later in the day and of faster tightening in the months ahead pushed the US currency below 5.00 reais.
It was the first time since June last year that the dollar has traded below the psychologically key 5.00 level, and means the real has appreciated around 18% in the last three months and is now up almost 4% year-to-date.
The dollar fell around 1% to a low of 4.9926 reais on Wednesday, ahead of the Brazilian central bank’s interest rate decision.
The bank’s rate-setting committee known as ‘Copom’ is widely expected to raise the benchmark Selic rate by 75 basis points for a third straight meeting, to 4.25%, and perhaps drop its commitment to only a “partial normalization” of policy.
Longer-term rate curves flattened in tandem with the strengthening real, indicating that investors are more confident the central bank will do whatever it takes to bring inflation back in line.