Itaú BBA - Copom: Stable rates, for now

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Copom: Stable rates, for now

April 27, 2016

We believe that the evolution of the scenario will allow the central bank to start a cycle of rate cuts in the second half of this year.

The Central Bank’s monetary policy committee (COPOM) maintained the SELIC rate at 14.25%, as expected. The decision was unanimous, in contrast to the previous 3 meetings, in which two members voted to increase the Selic rate.

The statement that followed the decision was as follows:

“ ​The Committee recognizes advances in the fight against inflation, especially in restraining the secondary effects of adjustments in relative prices. However, it considers that high year-over-year inflation and inflation expectations are distant from the targets do not offer space for easing monetary policy.”

The statement illustrates the view – which already appeared in recent speeches of COPOM members – that the improvement in the inflation scenario is still insufficient to allow for rate cuts. This signals that rates are likely to remain constant in the near future.

By mentioning high 12-month inflation and inflation expectations distant from the targets, the COPOM indicates that there are no conditions yet to ease monetary policy. In our base-case scenario, we believe that 12-month inflation and inflation expectations will continue to converge gradually to the targets (this already started to occur in latest months), because of the prolonged recession, the end of relative prices realignment and prospects of a more stable exchange rate.

Therefore, we believe that the evolution of the scenario will allow the central bank to start a cycle of rate cuts (50bps per meeting) in the second half of this year.


 

Ilan Goldfajn
Chief Economist

Caio Megale
Economist


 

 



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