On Thursday, the U.S. dollar experienced a notable increase of over 1%, a reaction to the contentious decision by Brazil’s Monetary Policy Committee (COPOM) to decelerate the pace of Selic rate cuts.
This decision, a close call at 5 votes to 4, was made late Wednesday, reducing the Selic rate by 25 basis points to an annual rate of 10.50%.
This vote reflects deepening uncertainties in both the international and domestic arenas and hints at possible shifts in Brazil‘s monetary policy strategies.
The slim margin of the vote has ignited concerns over heightened political influence within the committee.
Especially from members aligned with President Lula, who advocated for a steeper 0.5 percentage point cut.
Market speculators now ponder whether the Brazilian Central Bank will soften its stance on inflation control. This is particularly true once Lula’s appointees dominate the board in 2025.
The board has four Lula-appointed directors and five from Bolsonaro’s tenure, with key terms ending in December.
Amidst these dynamics, the spot dollar escalated by 1.01% to R$5.142, both in buying and selling terms.
Market Concerns
Concurrently, future dollar contracts were also on the rise, peaking at 5.151 points by 5:36 PM Brasilia time.
This surge in the dollar underscores the market’s wariness about the potential for increased political meddling in Brazil’s Central Bank operations.
Thiago Avallone, a currency expert from Manchester Investments, emphasized the market’s anxiety about the anticipated loss of autonomy of the Central Bank by 2025.
This makes it potentially more vulnerable to political pressures.
“Shock reactions to decisions like COPOM’s lead to immediate protective trading, though market corrections often follow,” he noted.
Traders and policymakers monitor these developments, noting broader implications for Brazil’s economic stability and its ability to manage inflation.
This remains a pressing concern for both domestic and international observers.