By Tim Seymour
With an aggressive 50-basis-point hike in the COPOM rate, the Brazilian Central Bank may have put the brakes on the runaway train that was the Brazilian real this week. We recently highlighted the blowout in emerging markets' rates/currencies all over the world, but the Brazilian real move has been especially troubling considering how seemingly controlled the currency has been by the government.
Last night, Brazilian Central Bank committee members voted unanimously to hike 50 basis points compared to expectations of a 25-basis-point hike. This is the second straight hike in Brazil. GDP growth has been weaker than expected in Brazil, so this was not driven by fear of too strong economic growth. The hike was driven by inflation fears and growing supply constraints.
Brazilian markets are closed today, but the proxy for how Brazil is trading -- via the iShares MSCI Brazil Capped Index Fund (EWZ) -- tells you the market has found some relief in this Brazilian Central Bank move. Overall, we would argue there is a range buy on the Brazilian real, despite the sloppiness of the tape in Brazil and all over emerging markets.