MNI INTERVIEW: No BCB Shift After U.S. 50% Tariffs - Volpon

The Central Bank of Brazil is unlikely to change its plans due to the 50% trade tariff imposed by the United States, former deputy governor for international affairs Tony Volpon told MNI, adding that the effects on the economy will depend on the outcome of the diplomatic response and whether or not there will be negotiations.

In his view, the BCB will keep interest rates at 15.00% in the upcoming meetings, as already signaled. ( See MNI INTERVIEW: No BCB Rate Hike Ahead, 2025 Cut Likely-Kanczuk)

He emphasized that Brazilian exports to the U.S. represent only 2% of GDP and could be redirected to other countries, since they mostly consist of low value-added commodities like soybeans.

In addition, a potential loss in export revenue could be offset by the exchange rate, which would keep revenue in reais more or less balanced, noted Volpon, now a professor at Georgetown University.

"The exchange rate adjustment wouldn't be significant. So if the dollar goes back to 5.70 or 5.80, it won’t change things much. I don’t think this changes the BCB’s path, they won’t have to hike rates again because of it," he emphasized.

TRADE REARRANGEMENT

There could be a trade rearrangement, the former official noted. "For example, if the U.S. stops buying from Brazil and starts buying from Argentina, then Argentina might stop selling to another country, and Brazil could step in to supply that market."

He mentioned a potential stumbling block around Embraer — a Brazilian aerospace company and major exporter — noting that it has a factory in the United States. "I’m not exactly sure how those issues would be handled," he said.

Volpon added the market is not betting that this situation will spiral out of control, which is why the BRL is strengthening today. "It’s not an apocalypse."

In the worst-case scenario where the conflict escalates and both countries increase retaliatory measures, the exchange rate could worsen significantly and the economic impact could be greater, he said.

FINANCIAL EXPOSURE

"We don’t have major trade exposure, but we do have significant financial exposure to the U.S. If the threat of a 100% tariff materializes, for example, or if President Lula refuses to negotiate and the tariff war intensifies, we could start facing financial and banking sanctions. That scenario is not close to happening, but we can’t say there’s no risk."

He fears that President Luiz Inácio Lula da Silva (PT) might see political advantage in internationalizing the ‘us versus them’ narrative. "He was already using this rhetoric in the IOF debate —but now, the villain wouldn’t be Congress, but Donald Trump and the United States. He would be entering a very dangerous path if Trump decides to retaliate."

Some analysts are projecting a drop in Brazil’s GDP due to the U.S. tariffs, and Volpon said this could, on one hand, help the BCB curb inflation, but the depreciation of the real could have the opposite effect. "The board will have to assess which effect will prevail."