Itaú BBA - Copom: 50-bp cut, signaling another 50-bp adjustment ahead

Macro Brazil

< Volver

Copom: 50-bp cut, signaling another 50-bp adjustment ahead

julio 31, 2019

The Copom reduced the interest rate by 0.50 pp and signaled an additional adjustment of the same magnitude at the next meeting.


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

 

• The Copom delivered a 50-bp rate cut, in a unanimous decision, despite the signs of market stress seen after the earlier Fed decision. This move was in line with our expectation, but was not the market consensus. Inflation targeting is actually inflation-forecast targeting, and the set of figures provided in the meeting statement suggests an overall easing budget of some 100bps. But that is also conditional on an envisaged resumption of the economic recovery, which is as of yet uncertain. The decision to start with a 50-bp move, as well as language used in the policy statement, indicates that, for now, another 50-bp downward “adjustment” of the benchmark rate needs to be the base case for the next meeting. So, we expect the Copom to take the Selic down to 5.5% at its September gathering. For now, given the weakness of the recovery and the benign inflation outlook, we expect the Selic to be trimmed to 5% by year-end. To summarize, it appears that external/internal factors dominate the upside/downside risk to said call (provided economic reforms stay on track). We will learn more about the Copom rationale with the release of the meeting minutes on Tuesday, August 6, at 08:00 Brasília time.


 

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



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