Itaú BBA - Copom Cockpit: stability amid a more challenging scenario

Macro Brazil

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Copom Cockpit: stability amid a more challenging scenario

June 15, 2018

We believe that the current scenario, while certainly challenging, will lead the Copom to maintain the Selic rate stable at 6.5% at the June 19 and 20 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. Recent data continue to show an environment of low inflation and anchored expectations, in a context of more gradual recovery of activity, which will likely be influenced by the tightening of financial conditions and the truck drivers' stoppage. Copom's inflation forecasts will probably increase for 2018, compared to the figures released in May, in the minutes of the most recent Copom meeting. For 2019, the forecast will likely remain stable in the market scenario – which includes exchange and interest rates according to the Focus survey – and wll likely increase in the reference scenario - which assumes constant exchange and interest rates. 

Our baseline scenario is that the Selic rate will remain stable at 6.5% until the end of the year. Since the Copom meeting in May, the scenario has become increasingly challenging. On the domestic side, the deterioration of financial conditions and the effects of the truck drivers' stoppage will likely affect the pace of economic recovery. As for the recent BRL depreciation, the committee stressed that monetary policy will not automatically react to the evolution of the exchange rate. But we understand that the stance of monetary policy will remain dependent on BRL dynamics and, in particular, on its impact on inflation and inflation expectations.


 

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



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