Itaú BBA - Copom: boldly toward the future

Macro Brazil

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Copom: boldly toward the future

mayo 6, 2020

The Copom cut the base rate to 3.0% pa (we expected a more modest move, to 3.25%) and signaled one final cut in June.


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

 

 The Copom cut the base rate to an all-time low of 3.0% pa (we expected a more modest move, to 3.25%). This happened despite more than 20% BRL depreciation since the previous policy meeting, and after signs that fiscal policy deterioration may be more persistent than we had been expecting. In addition to that, the authorities indicated that two committee members wanted an even bolder move, and that the 75-bp decision was a “moderate” adjustment. 

 Looking ahead: the meeting statement indicates that the authorities will deliver a final cut, no more than 75bps, in the next policy meeting. In our view, it would take an even more dramatic worsening of the fiscal outlook and an even more extreme level of the currency to prevent the Copom from repeating today´s decision in June. We thus expect the central bank to take the Selic to 2.25%pa in its policy meeting, where it should rest until year-end. 

 It should be noted that, given recent legal changes, the central bank should shortly be in a position to act in the government bond market, so as to prevent the yield curve from steepening much, which should make it more comfortable about moving more swiftly in the short end. We will learn more about the central bank´s views with the release of the minutes on Tuesday, May 12.


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



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