Emerging Markets: the Brazilian real falls as inflation rises

On Tuesday, the Brazilian real sank as growing inflation fueled fears that aggressive monetary
policy tightening will stifle economic growth, while most other Latin American currencies
declined against a firm dollar. The Real currency fell 0.4 percent, as statistics indicated that
inflation in Brazil increased faster than expected in the month to mid-October, owing to higher
fuel and electricity prices - the sharpest monthly rate of growth since February 2016. The
benchmark Selic rate is projected to be hiked by 100 basis points on Wednesday, according to a
Reuters poll released last week. The Real recovered some of the day's losses thanks to positive
tax revenue statistics for September. However, on recent fears that the government will exceed
its expenditure cap, the currency fell to a six-month low. On Monday, economists at ‘Itau
Unibanco’, Latin America's largest bank, cautioned that Brazil's economy is likely to contract next
year as the central bank raises interest rates amid concerns about increased government
expenditure.
​Written by: Lucas Scala and Carolina Paixão
Edited by: Anna Kissajikian