07:59 AM EDT, 05/02/2025 (MT Newswires) -- The Brazilian central bank (BCB) has been quite an outlierin recent months, as inflationary risks led to policy rate hikes at a time when most other central banks are easing, said UBS.

Recently, the BCB has struck a more dovish tone and next Wednesday's expected 50bps hike to 14.75% might be the last of this cycle, wrote the bank in a note to clients.

The real (BRL) is benefiting from the high interest

rate carry, but remains vulnerable to trade frictions, stated UBS.

Nuances are important, however, as Brazil is benefiting from increased Chinese demand for agricultural products and a rotation of capital out of the United States should also support the Brazilian real -- provided the country can maintain fiscal credibility, added UBS.

Unfortunately, the current fiscal framework is challenged and reforms look unlikely before the 2026 elections, added the bank. In a deepening global risk-off scenario, the real could come under pressure again.