Itaú BBA - Evening Edition – Copom minutes: easing ahead in Brazil, probably

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Evening Edition – Copom minutes: easing ahead in Brazil, probably

June 25, 2019

The minutes reinforce our call that the Copom will resume easing in July, conditional on concrete progress in the reform front.

Talk of the Day


The minutes of Copom’s last monetary meeting, at which the committee kept the Selic rate stable at 6.5% pa, were released today. The minutes bring about a clear verbal indication that, conditional on concrete progress on the reform front, the Copom will resume easing shortly. The authorities state that the forward looking scenario that incorporates rate cuts delivers inflation at target in the key policy horizon. The text also updates their assessment of economic activity, with explicit concession that the recovery has stalled. While expressing a more benign view of the external environment, the Copom provides a mixed view on the impact of fiscal adjustment on the economy. In all, we think the text reinforces our call that the Copom resumes easing with a 25-bp rate cut in its July 31th meeting, conditional on concrete progress in the reform front. It should be noted that the Copom decision will take place a few hours after the release of the July FOMC outcome, which may have some bearing on local deliberations. ** Full story here.

June’s IPCA-15 inflation came in at 0.06% mom, in line with our forecast and slightly below market expectations (0.07%). In year-over-year terms, inflation receded to 3.84%, from 4.93% in the previous month, also in line with our call and slightly below the market’s (3.85%). Deflation in food prices took the spotlight, with price drops for food consumed at home (-0.82%) and away from home (-0.33%). Market-set prices fell 0.07% (3.5% yoy, from 4.3% in the IPCA-15 report for May), while regulated prices climbed 0.43% during the month, leading the year-over-year rate to slid to 4.8% yoy (6.8% yoy in the previous month). Importantly, all core measures remain at comfortable levels, while many of the temporary shocks seen in some prices earlier this year — especially fresh groceries and fuels — are already being reversed. The Brazilian economy continues to face a wide output gap. That factor, along with favorable inertia and anchored inflation expectations, should keep inflation under control. Finally, the National Monetary Council (CMN) meets on Thursday, June 27, and will decide the inflation target for 2022. We expect the target to be set at 3.5%, following the already disclosed downward path of 0.25 p.p. per year, from 4.25% this year to 3.75% in 2021. ** Full story here.

According to FGV monthly survey, consumer confidence increased 1.9 p.p in June, to 88.5, after four consecutive drops. The current situation index remained stable, while the expectation component increased 3.2 p.p. in the period, to 99.7, rebounding from the previous 2.2 p.p. drop registered in May.

Tomorrow’s Agenda: At 8:00 AM, FGV’s construction and retail confidence indexes for June will be released. On the fiscal front, May’s primary budget balance for the central government will come in, for which we expect a BRL 17.9 billion deficit. Additionally, the Central Bank will publish May’s credit report.


Retails sales increased 1.6% yoy in April, above our forecast (-0.1%) and the market’s expectations of 1.4%. According to calendar-adjusted data reported by the statistics institute (INEGI), retail sales accelerated to 2.3% yoy in April (from 0.9% March), taking the quarterly growth rate to 1.9% in April (from 1.3% in March). At the margin, using seasonally-adjusted figures, retail sales accelerated to 0.7% mom in April (from -0.2% in March), taking the qoq/saar to 4.8% in the month (from 2.1% in March). Relative to 2018, we expect private consumption to moderate its pace in 2019, as the U.S. deceleration and uncertainties facing the economy curb GDP growth. In this context, employment is already weakening. However, lower inflation expectations and recent minimum wage increases support real wages, which provides backing for consumption. ** Full story here.

Tomorrow’s Agenda: At 10:00 AM, INEGI will announce May’s unemployment rate, which we expect to come in at 3.4%. According to data reported by the Mexican Institute of Social Security (IMSS), formal employment continues to weaken (2.39% yoy in May, from 2.54% in April).


Tomorrow’s Agenda: At 4:00 PM, the INDEC will publish the EMAE (official monthly GDP proxy) for April, which we expect to increase 1.0% mom/sa, implying a 3.5% yoy decline. At the same time, external accounts data will be released. For May’s trade balance, we forecast a surplus of USD 1 billion (versus a USD 1.3 billion deficit registered in the same month of 2018). The current account balance for 1Q19 will be published as well, for which we forecast a USD 2.5 billion deficit from -USD 9.6 billion in 1Q18.

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