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Investing.com -- Brazil’s inflation rate eased more than expected in May, reaching 5.32% year-over-year compared to the consensus forecast of 5.39%. The better-than-anticipated inflation reading suggests the country’s monetary tightening cycle may be approaching its conclusion.
Inflation forecasts for 2025 have declined slightly, helped by moderating food prices across the country. Despite the improvement, current inflation remains above Brazil’s target band of 1.5-4.5%, keeping pressure on policymakers to maintain restrictive monetary conditions.
The Brazilian central bank currently views its policy stance as highly restrictive, with the benchmark interest rate standing at 14.75%. UBS analysts believe the tightening cycle is nearly complete, with any additional rate hike at next week’s meeting likely to be the last in the current series.
Policymakers will likely want to see inflation move closer to the midpoint of their target range before considering rate cuts, according to market observers. The central bank’s cautious approach reflects its commitment to bringing inflation firmly under control.
The Brazilian real (BRL) should continue benefiting from its high interest rate differential against other currencies and from broad U.S. dollar weakness. Investors should remain aware of lingering fiscal uncertainties that could affect the currency’s performance.
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