Brazil’s Central Bank Cut Is About the Election
However, the rate cut boosts President Luiz Inácio Lula da Silva campaign for re-election in October despite the macroeconomic risk.
Brazil’s Central Bank cut the Selic rate for the third consecutive meeting in mid-June, bringing the benchmark rate to 14.25%, even as inflation remains above target, fiscal stimulus is rising, and the presidential campaign is beginning to dominate the economic narrative.
Brazilian assets dropped after investors pushed back against the central bank’s decision to lower rates while warning that inflation pressures are getting worse.
However, the rate cut boosts President Luiz Inácio Lula da Silva campaign for re-election in October despite the macroeconomic risk.
Markets reacted negatively.
The real weakened, long-term rates rose, and investors questioned whether the Central Bank is easing into a hotter inflation environment.
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