Itaú BBA - Copom delivers a 75bp hike and scraps mention of partial adjustment

Latam Talking Points

< Back

Copom delivers a 75bp hike and scraps mention of partial adjustment

June 17, 2021

The Copom signaled another 75-bp hike in August, but indicated that the tightening pace may increase if expectations continue to go up

Talk of the Day

MACRO VISION: When will economies return to their pre-pandemic GDP levels and trends? A full GDP recovery (to pre-pandemic trends) will likely be achieved in 2021 in most developed countries, but not until 2022 or later in emerging markets (excluding China). The vaccination pace and the scale of (and space for) fiscal responses are the main variables that explain the disparities in the pace of recovery across countries. ** Full story here.

Brazil

COVID-19 update: According to state health departments figures, Brazil has vaccinated 27.7% of its population (58.9 million individuals) with the first dose, while 11.3% (24.1 million) are fully vaccinated. The 7-day moving average of daily vaccination is currently at 1,009,251 (up 21% vs. one week ago, +29% vs. two weeks ago and +54% vs. 30 days ago). About 115 million shots were already distributed, with 35 million yet to be administered. Brazil registered a daily increase of 2,997 deaths and 95,367 confirmed cases. The 7-day moving average of deaths is currently at 2,025 (up 12% vs. one week ago, +12% vs. two weeks ago and +5% vs. 30 days ago). Meanwhile, the 7-day moving average of cases stands at 72,244 (up 24% vs. one week ago, +10% vs. two weeks ago and +12% vs. 30 days ago). The total number of deaths reached 493,693, with 17,628,588 confirmed cases, which implies a 2.8% mortality rate.

The Copom delivered the widely expected 75bp rate hike, to 4.25%, and scrapped mention of partial adjustment. The committee indicated that its next move will probably be another 75bp increase and added, in a hawkish twist, that in case expectations keep worsening, it may need to accelerate the pace of monetary normalization, opening the door to even faster tightening. For now, we expect the Copom to deliver another 75bp move in its next meeting, but we will carefully monitor inflation expectations. We´ll learn more about the Copom´s rationale with the release of the minutes on Tuesday, June 22. **Full story here.

IDAT-Activity: Our daily economic activity tracker increased 5.2 points, to 112.0 (latest available data from Saturday, June 12). The 7-day moving average advanced 1.6 points, to 106.7, the highest level since the beginning of the series. At the margin, the indicator is 38.1 points up from the recent bottom seen on April 4. Compared to its lowest level (April 10, 2020), the index is currently 62.6 points up. See our report here.

Day Ahead: The Senate may vote on the provisional measure dealing with the privatization of Eletrobras.

Argentina

COVID-19 update: According to the Ministry of Health, Argentina has vaccinated 29.4% of its population (13.2 million individuals) with the first dose, while 7.6% (3.4 million) are fully vaccinated. The 7-day moving average of daily vaccination is currently at 233,005 (down 28% vs. one week ago, +4% vs. two weeks ago and +71% vs. 30 days ago). Argentina registered a daily increase of 646 deaths and 25,815 confirmed cases. The 7-day moving average of deaths is currently at 570 (down 2% vs. one week ago, +7% vs. two weeks ago and +15% vs. 30 days ago). Meanwhile, the 7-day moving average of cases stands at 22,861 (down 12% vs. one week ago, -28% vs. two weeks ago and -11% vs. 30 days ago). The total number of deaths reached 87,261, with 4,198,557 confirmed cases, which implies a 2.1% mortality rate.

Consumer prices climbed 3.3% mom in May, below market expectations of 3.6%, according to the latest central bank survey, and down from 4.1% in April and the peak of 4.8% in March. The 12-month inflation rose to 48.8% in May, from 46.3% in April. In turn, core inflation printed at 3.5% mom (52.5% yoy), driven by health services and food items. Overall, sequential inflation continued to fall – albeit at a slow pace – and will likely continue with this trend in the coming months. The central bank reduced the pace of depreciation of the official exchange rate to 1.2% mom and reduced monetary transfers to the Treasury in line with a contraction of the fiscal deficit in the early months of the year. However, more rapid disinflation looks challenging. Economic agents have only slowly adjusted their inflation expectations down, as there are growing distortions in relative prices and announcements of new fiscal expenditures to assist vulnerable people in the face of a second wave of COVID-19. Therefore, we forecast 47% inflation for this year, with risks tilted to the upside. ** Full story here.

Paraguay

Macro Scenario: Struggling with the second wave. Covid-19 contagion remains high amid a slow progress in the vaccination campaign. Despite this, mobility restrictions are not currently very strict and are limited to evening hours. The fiscal accounts improved in May, supported by the recovery of activity. However, the government will likely implement a new fiscal stimulus (worth around 1.0% of GDP). The rating agency, S&P, maintained Paraguay’s rating at BB with a stable outlook, on the expectation of an economic recovery that would allow a reduction of the fiscal deficit.  We revised our inflation forecast for 2021 to 3.5% (compared to our previous scenario of 3.0%), reflecting upside pressure from commodity prices, which we expect to be mitigated by a still negative output gap (we expect GDP growth of 3.5% for 2021). ** Full story here.

Uruguay

Macro Scenario: Still-high Covid-19 contagion despite fast vaccination progress. Daily Covid-19 cases and deaths remain at high levels, despite the advanced progress of the vaccination campaign. Even so, mobility restrictions were eased during May, while borders remain closed (affecting tourism). We expect GDP growth of 3.0%, after a 5.9% contraction in 2020, supported by a positive carryover and better terms of trade. We expect inflation at 7.0% for 2021. A still-negative output gap, slower pace of currency depreciation and contained wage adjustments will help offset upside pressure from higher commodity prices. In this context, we expect the central bank to start hiking its policy rate during the second half of the year, reaching a level of 5.5% (100 bps above current levels). The credit rating agency Fitch maintained Uruguay’s rating at BBB-, with a negative outlook, reflecting a rising public debt/GDP ratio and uncertain prospects for fiscal consolidation. We forecast a nominal fiscal deficit of 5.0% of GDP for 2021 (slightly below the 2020 deficit of 5.2% of GDP). ** Full story here.

Mexico

COVID-19 update: According to the Secretary of Health, Mexico has vaccinated 20.5% of its population (26.4 million individuals) with the first dose, while 11.8% (15.2 million) are fully vaccinated. The 7-day moving average of daily vaccination is currently at 381,323 (down 39% vs. one week ago, -38% vs. two weeks ago and +5% vs. 30 days ago). Mexico registered a daily increase of 241 deaths and 4,250 confirmed cases. The 7-day moving average of deaths is currently at 190 (up 10% vs. one week ago and -5% vs. 30 days ago). Meanwhile, the 7-day moving average of cases stands at 3,084 (up 20% vs. one week ago and +33% vs. 30 days ago). The total number of deaths reached 230,428, with 2,459,601 confirmed cases, which implies a 9.4% mortality rate.

Chile

COVID-19 update: According to the Department of Statistics and Health Information, Chile has vaccinated 61.5% of its population (11.7 million individuals) with the first dose, while 47.7% (9.1 million) are fully vaccinated. The 7-day moving average of daily vaccination is currently at 92,416 (down 39% vs. one week ago, -42% vs. two weeks ago and -24% vs. 30 days ago). Chile registered a daily increase of 57 deaths and 4,322 confirmed cases. The 7-day moving average of deaths is currently at 112 (up 6% vs. one week ago, -1% vs. two weeks ago and +29% vs. 30 days ago). Meanwhile, the 7-day moving average of cases stands at 6,542 (down 9% vs. one week ago, -9% vs. two weeks ago and +16% vs. 30 days ago). The total number of deaths reached 30,922, with 1,491,561 confirmed cases, which implies a 2.1% mortality rate.

Colombia

COVID-19 update: According to the Ministry of Health, Colombia has vaccinated 18.2% of its population (9.3 million individuals) with the first dose, while 7.6% (3.9 million) are fully vaccinated. The 7-day moving average of daily vaccination is currently at 137,277 (down 22% vs. one week ago, -55% vs. two weeks ago and -8% vs. 30 days ago). Colombia registered a daily increase of 595 deaths and 27,827 confirmed cases. The 7-day moving average of deaths is currently at 584 (up 11% vs. one week ago, +12% vs. two weeks ago and +16% vs. 30 days ago). Meanwhile, the 7-day moving average of cases stands at 27,721 (up 10% vs. one week ago, +15% vs. two weeks ago and +72% vs. 30 days ago). The total number of deaths reached 97,560, with 3,829,879 confirmed cases, which implies a 2.5% mortality rate.

Peru

COVID-19 update: According to the Ministry of Health, Peru has vaccinated 10.8% of its population (3.6 million individuals) with the first dose, while 6% (2.0 million) are fully vaccinated. The 7-day moving average of daily vaccination is currently at 112,954 (up 59% vs. one week ago, +9% vs. two weeks ago and +66% vs. 30 days ago). Peru registered a daily increase of 340 deaths and 3,225 confirmed cases. The 7-day moving average of deaths is currently at 301 (down 17% vs. one week ago and stable vs. 30 days ago). Meanwhile, the 7-day moving average of cases stands at 2,792 (down 24% vs. one week ago -51% vs. 30 days ago). The total number of deaths reached 189,261, with 2,007,477 confirmed cases, which implies a 9.4% mortality rate.



< Back