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Analysts at TDS expect the BCB to remain on hold, but sound a more hawkish tone against a strained BRL.

Key Quotes

“We foresee that for the time being, and at current levels of BRL, the BCB will prefer to address FX weakness with its swap program rather than with interest rates, given lack of external deficit or funding issues, and the very large output gap in the face of repressed inflation. Brazil’s issues are more due to domestic factors, rather than the external environment, which suggest caution on a rate hiking cycle for the BCB, contrary to what the DI market has priced.”