Itaú BBA - Copom Cockpit: Stable Selic in September amid growing uncertainties

Macro Brazil

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Copom Cockpit: Stable Selic in September amid growing uncertainties

September 13, 2018

We believe that the current situation is still consistent with a stable Selic rate at 6.5% in the next 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. Notwithstanding the pressure on the exchange rate, so far recent moves have not translated into significant secondary effects on inflation. Copom’s inflation forecasts for 2018 will likely remain stable in both the market scenario (which includes exchange and interest rates according to the Focus survey) and the reference scenario (which assumes constant exchange and interest rates) when compared to those released in the last monetary policy meeting. For 2019, the inflation forecast will probably recede slightly in the market scenario and rise in the reference scenario — in both cases to levels that are still consistent with the targeted path for inflation.

With relatively stable forecasts and high level of slack in the economy, we believe that the dislocation of the balance of risks – largely driven by the risk of disappointment with the expectation of reforms – is so far not enough to motivate a change in the monetary policy stance, in the absence of further deterioration. In other words, we believe that the current situation is still consistent with a stable Selic rate at 6.5% in the next Copom meeting.

In our view, the committee will continue to refrain from sending explicit signals about its next steps, so as to preserve its flexibility amid heightened uncertainties. However, given the volatility increase caused by domestic drivers as well as a less favorable international background (particularly for emerging markets in need of adjustments, as Brazil), the committee may decide to stress — even more emphatically than in its recent minutes and communications — that the perception of continuity of the reform agenda may affect expectations and current macro forecasts and, consequently, impact monetary policy measures.
 

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



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