Itaú BBA - Copom Cockpit: relatively unchanged balance of risks

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Copom Cockpit: relatively unchanged balance of risks

July 26, 2018

We believe that the current scenario is consistent with the maintenance of the Selic rate at next week’s 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. Looking at recent inflation readings, there is evidence that the truck drivers' stoppage has resulted in only temporary pressure on price levels, and that the depreciation of the Brazilian real is not generating relevant secondary effects thus far. As the shock fades, the pace of economic recovery, which has become more sluggish after recent events – specially the tightening of financial conditions – remains as the backdrop to the inflation scenario. Copom's inflation forecasts will likely rise slightly in both the market (which includes exchange and interest rates according to the Focus survey) and the reference scenario (which assumes constant exchange and interest rates) compared to those released in June, in the inflation report and in the minutes of the monetary policy meeting, but are set to remain consistent with the targeted path. 

Our baseline scenario assumes that the Selic rate will remain stable at 6.5% until the end of the year. With forecasts that are unlikely to change significantly and a relatively stable balance of risks, we believe that the current scenario is consistent with the maintenance of the Selic rate at the next meeting. For the following meetings, we believe that in a context of sluggish growth, high level of slack in the economy and stable inflation expectations at levels that are consistent with the targets, rate hikes are unlikely and would only occur in the event of significant new shocks that alter the balance of risks and the expected path for inflation. Still, given the unusually high level of uncertainty in the economy, the Copom will likely remain cautious in its communication, refraining from a clear indication about its next steps.

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



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