Brazil's currency fell after Lula won. Will its central bank cut rates on 4 Nov?
Brazil's real lost 12% against the dollar on 26 October, after Luiz Inácio Lula da Silva won a fourth term. Its central bank sets rates on 4 November.
What happened
Brazil’s currency dropped against the dollar by 12 percent in spot trading. Bovespa stock index futures tumbled nearly 15 percent on Monday.
Brazil’s currency lost 12% against the US dollar on , the first trading day after President Luiz Inácio Lula da Silva won a fourth term. The main share index fell 10%, and the São Paulo stock exchange stopped trading for 30 minutes.
The central bank’s own daily rate for the currency, the real, also jumped. One dollar cost 5.04 reais on Friday and 5.50 reais on Monday . On it cost 5.34 reais.
Investors expect Lula’s government to spend more. Contracts that track future interest rates rose 3.1% on . Lula’s team aims for a budget surplus of about 1.3% of the size of the economy by 2030, while public debt is already above 82% of it.
The central bank’s rate committee, called Copom, has cut its main interest rate, the Selic, at each of its last five meetings, since March, by 0.25 point each time, from 15% to 13.75%. On it named a persistently weaker real among the risks that could push inflation up, and said it would stay cautious.
The Copom decided to reduce the basic interest rate to 13.75% a year.
Banco Central do Brasil, Copom statement, (translated from Portuguese)
The committee meets on 3 and and announces its decision on . In the central bank’s weekly survey of forecasters, the middle answer on , before the election, was a cut of 0.25 point to 13.50%.
Sources: aljazeera.com
The Pattern
We looked for cases where Brazil’s rate committee had cut its rate at its two meetings before, by no more than 0.50 point each time, and had warned that a weaker real could push up prices. We found five such meetings among 249 since . Three came this year and two in late 2023.
Show the other 3 cases
The Read
In the five meetings most like this one, the committee cut again by the same step, and every member voted for it. Each time it had warned about a weaker real, and the real had moved by less than 1.3% in the two weeks before the decision.
This time the fall is far bigger. In the two weeks to the dollar rose 5.9% against the real. During a run of small cuts, the committee met after falls that big twice, in March and , and cut both times, by 0.50 and 0.75 point. In it stopped a run of cuts, as its inflation forecasts rose, after the dollar rose 3.4% against the real in two weeks. All of these choices were made by one committee, and the five meetings above come from just two runs of cuts.
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