Itaú BBA - Copom Cockpit: Selic stable in October amid more balanced risks for inflation

Macro Brazil

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Copom Cockpit: Selic stable in October amid more balanced risks for inflation

October 25, 2018

We believe that Copom will maintain the Selic rate stable at 6.5% p.a. at the October 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. Copom's inflation forecast will likely rise for 2018 in the market scenario (which includes exchange and interest rates according to the Focus survey) and will remain stable in the reference scenario (which assumes constant exchange and interest rates) compared to those released in the 3Q inflation report. By 2019, the inflation forecast will likely remain stable in the market scenario and recede in the reference scenario. By 2020 and 2021, inflation forecasts will probably remain stable in the market scenario. In the reference scenario, the forecast for 2020 is expected to show a slight decline and remain constant for 2021.

With inflation forecasts anchored around their targets up to 2020 and moderating towards the 3.75% target in 2021, in a context where the level of spare capacity in the economy remains high, we believe that Copom will maintain the Selic rate stable at 6.5% p.a. at the October meeting. As has been the case in the last meetings, the committee will probably refrain from making more direct signals regarding its next steps in order to maintain flexibility in a still substantially uncertain context, both domestically and internationally.

As for the risks for inflation, the appreciation of Brazilian assets since the last Copom meeting suggests less asymmetry in the upward direction. It should be noted, however, that the international scenario remains challenging, given the tightening of financial conditions, high trade tensions and signs of a slowdown in global economic activity. Therefore, in the face of contradictory developments in the domestic and foreign spheres, we believe that the Copom may qualify its assessment that the risks to inflation would be asymmetric.

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



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