The dollar hit the lowest price in almost five months this Wednesday (9). The expectation that rising inflation will force further interest rate hikes is drawing foreign capital into the country, easing pressure on the exchange rate.
After some ups and downs throughout the day, the US currency closed down 0.64% at R$5.2260. It is the lowest price since the R$ 5.2230 recorded on September 13, 2021. The dollar has already dropped 6.27% this year.
Without repeating the robust gains of January (6.98%), the Stock Exchange still benefits from the market’s assessment that Brazilian assets remain cheap. This has led its benchmark index to achieve some discreet highs. This Wednesday, the Ibovespa rose 0.20% to 112,461 points.​
Pressured by food, Brazil’s official inflation rose 0.54% in January, the IBGE (Brazilian Institute of Geography and Statistics) reported on Wednesday. It’s the highest result for the month in six years.
In line with analysts’ expectations, the result signals a deceleration compared to December 2021, when the advance had been 0.73%, but the IPCA remains in double digits in the 12-month period.
When analyzing the rise in prices in Brazil, Goldman Sachs highlighted that “inflation is now not only very high, but also highly widespread.”
Against this backdrop, according to the bank, there is a growing risk that retroactive price and wage adjustments will keep rising inertial inflation, which means a chain reaction, in which all sectors try to pass the rise in costs onwards.
The spread of inflation across several sectors can reduce the impact of the main instrument at hand by the Central Bank to try to stop the rise in prices, which is to make access to credit difficult by raising the basic interest rate. The Selic is already at 10.75% per year.
Given the expectation that the Fed (Federal Reserve, central bank of the United States) will raise US interest rates in March, Goldman Sachs describes a challenging scenario for Brazil. Higher interest rates in the US tend to pressure the dollar higher, as international investors can take money from Brazilian investments to seek safer gains in US Treasury bonds.
To keep dollars in the country, since the high exchange rate also puts pressure on inflation, the Central Bank of Brazil would also have the option of increasing the Selic rate even further.
Parameter to assess market expectations on interest rates, short-term DI (Interbank Deposits) rates were trading higher this Wednesday. In two days, rates rose from 11.95% to 12.26% per year. This type of contract is negotiated exclusively between banks, but serves as a reference for financing and loans in general.
Étore Sanchez, chief economist at Ativa Investimentos, revised upwards his expectations for the Selic in view of the tougher prospects indicated by the Central Bank on monetary tightening. Sanchez assesses that the Copom will raise the Selic to 11.75% in March and 12.25% in May.
Comments made earlier by the director of Monetary Policy of the Central Bank, Bruno Serra, increased expectations for the acceleration of interest rates. Serra stated that the autarchy’s battle against inflation is far from being won, showing concern about the propagation of high prices.
At the moment, while US interest rates remain at zero, Brazil offers advantageous real interest rates (discounting inflation). But interest rates are not the only factor attracting dollars to the country.
Investors are exchanging assets valued as expensive in developed markets, particularly US equities, for yields and opportunities in markets considered discounted. In this regard, Brazil stands out. There is consensus that the real is very undervalued and that the Brazilian stock exchange is cheap.
According to data released this Wednesday by the Central Bank, Brazil recorded the largest net inflow of dollars through exchange contracts in five months in January, with a surplus of US$ 1.49 billion (R$ 7.85 billion).
In this Wednesday’s stock exchange, the commodities sector, which is also responsible for the inflow of dollars into the country, played a positive role.
Vale sustained a slight increase of 0.02%, in a day of devaluation of iron ore contracts exported from Brazil to China. The commodity, however, remains valued in the Chinese market.
Petrobras rose 0.38%, supported by the 1.19% appreciation of oil. The barrel of Brent advanced 1.19%, at US$ 91.86 (R$ 484.36).
On the negative side, Bradesco shares sank 8.58%. Paula Zogbi, from Rico, drew attention to the bank’s balance sheet, which brought numbers considered weak, motivating the maintenance of the neutral recommendation for the stock by XP. In the wake of the competitor, Itaú yielded 3.98%.
Even among the companies that brought greater negative weight to the Ibovespa, Oi’s shares fell 2.88%.
Cade (Administrative Council for Economic Defense) approved with restrictions this Wednesday the purchase of Oi’s mobile networks by telephony operators Tim, Vivo and Claro for R$ 16.5 billion. Tim and Vivo shares advanced 5.06% and 2.72%.
In the United States, stocks closed in the black under the leadership of the technology sector. Nasdaq rose 2.08%. The segment is the one that has suffered the most losses in the face of expectations of high interest rates in the country.
Reference of the New York Stock Exchange, the S&P 500 index advanced 1.45%, while the Dow Jones rose 0.86%.
Analysts believe that the US stock market will continue to fluctuate until the Fed clearly indicates the pace of monetary tightening.
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