BRL's strong level is justified – Commerzbank

Economists at Commerzbank analyze BRL outlook following Brazilian inflation figures.

Inflation rate confirms BCB's path of rate cuts

Brazil's inflation rate rose as expected in August, but monthly inflation was slightly below expectations. In light of this development, even the most skeptical should forgive the Banco Central do Brasil (BCB) for kicking off the rate-cutting cycle last month with a surprisingly sharp 50 bps cut.

Furthermore, with inflation expected to remain below 5% for the time being, the expected further 50 bps easing at each of the remaining three meetings this year to a policy rate of 11.75% by year-end is, in our view, far from aggressive. We therefore continue to believe that the Brazilian Real's strong level is justified for now.