Brazil's currency firmed and interest rate futures jumped on Thursday as a more hawkish outlook from the central bank led economists to push back forecasts for rate cuts to next year, Reuters reported. The central bank's policy statement was a setback for newly inaugurated President Luiz Inacio Lula da Silva, who has blasted the level of interest rates - maintained at a six-year high of 13.75% on Wednesday - as an obstacle to economic growth. The Brazilian real strengthened in Thursday trading past 5.00 per dollar for the first time since June 2022, while the short end of the yield curve traded up sharply, pricing interest rates at higher levels through 2026. The central bank on Wednesday signaled that they were considering holding interest rates at current levels for longer than markets expect, citing inflation expectations drifting away from target amid uncertainties linked to fiscal expansion sponsored by Lula.
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