Itaú BBA - Copom Cockpit: conditional stability

Macro Brazil

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Copom Cockpit: conditional stability

January 31, 2019

We believe that the Copom will keep the Selic rate stable at 6.5% p.a. at the February meeting.

For the version with all charts and tables, please open the attached pdf file
 

• The Brazilian Central Bank's Monetary Policy Committee (Copom) meets again next week. The Copom's inflation forecast for 2019 will probably remain stable in the market scenario (which includes the exchange and interest rates forecasts reported in the Focus survey) and recede in the reference scenario (which assumes constant exchange and interest rates), compared to those disclosed in the 4Q18 quarterly inflation report. For 2020, the inflation forecast will likely show a slight increase in the market scenario and remain stable in the reference scenario.

• With inflation forecasts anchored around the respective targets up to 2021, in a context where the level of slack in the economy remains high, we believe that the Copom will keep the Selic rate stable at 6.5% p.a. at the February meeting. The committee will probably emphasize that the conduction of monetary policy will remain vigilant and preserve flexibility to react to deviations from the baseline scenario. 

• Such deviations may be due, in particular, to frustrations with the pace of economic activity that pressure the inflation path to below-target levels, as well as the lack of implementation of reforms and global pressures potentially acting in the opposite direction. In short, we believe that the Copom's communication will signal a symmetrical balance of risks around inflation forecasts.
 

For the version with all charts and tables, please open the attached pdf file



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