Itaú BBA - Evening Edition – A last (hawkish) salvo from BCB

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Evening Edition – A last (hawkish) salvo from BCB

February 6, 2019

We will learn more about the authorities´ thinking with the release of the Copom minutes on Tuesday, February 12, at 0800 Brasília time.

Talk of the Day


The Copom decision came in as expected, the authorities left the base rate unchanged at 6.5%pa, in an unanimous vote, but the message was more hawkish than we had anticipated. While the Copom concedes that inflation risks have receded, it still sees them as tilted to the upside, and reinforced the message that monetary policy needs to be implemented with “caution, serenity, and perseverance”, which hints at the absence of any willingness to shift the monetary policy stance. We will learn more about the authorities´ thinking with the release of the Copom minutes on Tuesday, February 12, at 08:00 AM Brasília time. We expect the Copom to leave the base rate unchanged until year-end.

According to Anfavea, auto production reached 196.8k in January, in line with our forecast (197k), and increased 2.4% mom/sa (-10.0% yoy). The 3-month moving average declined 3.3%. In the sales breakdown, the 3-month moving average of both exports and domestic sales decreased in January (-3.9% and -1.4%, respectively).

The production breakdown shows a 3.1% increase in light vehicles and a 12.3% decline in trucks and buses (down for a third consecutive month). Inventories (measured as days of sales) remained stable in 25.1, above the historical average (23.5). 

With these results, our preliminary forecast for January’s industrial production declined 0.1pp to 0.0% mom/sa (-1.0% yoy).


In January, inflation remained contained and close to the central bank’s 3% target. The 0.60% monthly gain was lower than our 0.71% forecast and the 0.70% market consensus. As a result, annual inflation came in at 3.15%, slowing down from 3.18% in December and the lowest print since April last year. 

We expect inflation to increase to 3.4% by yearend. Food price normalization and the gradual activity recovery, which will eventually lead to an output gap narrowing, would lift inflation during the year. On the other hand, controlled inflation expectations, a weak labor market and slow housing dynamics should contain the acceleration. With inflation under control and activity showing a gradual recovery, the central bank is likely to keep the policy rate stable at 4.25% for the time being in its next decision meeting, in March 29.

Tomorrow’s agenda: The minutes of the January monetary policy meeting - at which the policy rate was kept stable at 4.25% - will be published at 4:00 PM (SP Time). The minutes will likely show the board is continuing to balance various risks: some inflation measures remaining high, the current account adjustment proceeding slower than expected, while there is uncertainty on the speed of the recovery and global risks are elevated.


Tomorrow’s agenda: the central bank will publish the trade balance for the month of January AT 9:30 AM (SP Time). We expect a trade surplus of USD 750 million (USD 1.2 billion one year earlier) in January, as energy import growth slows (on the back of lower prices). Also, nominal wage growth for December will also be released at 10:00 AM (SP Time). Wage growth in November was stable at 4.1%, resulting in growth of 4.2% in the moving quarter (4.0% in 3Q18 and 4.7% in 2Q18). The central bank has highlighted the impact immigration has had on employment supply, partly explaining slowing wage pressures.


Tomorrow’s agenda: INEGI (the statistics institute) will publish CPI inflation corresponding to the full-month of January at 12:00 PM (SP Time), which we expect to come in at 0.21% mom. The Central Bank of Mexico (Banxico) will hold a board meeting at 3:00 PM. We expect Banxico to remain on hold at 8.25%. 


Tomorrow’s agenda: The Central Bank of Peru (BCRP) will publish its February decision on the reference rate at 9:00 PM (SP Time), which we expect to remain unchanged.

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