Itaú BBA - Copom Cockpit: Selic rate moving towards 4.5%

Macro Brazil

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Copom Cockpit: Selic rate moving towards 4.5%

diciembre 6, 2019

We expect the Copom to cut the Selic rate by 50 bps at next week’s meeting, to 4.5% p.a.


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

 

 The Brazilian Central Banks’ Monetary Policy Committee (Copom) meets again next week, on December 10-11. We expect the Copom's inflation forecasts in the market scenario (which includes exchange and interest rates according to the Focus survey) to increase to 3.8% in 2019, to 3.7% in 2020 and 3.6% in 2021, from 3.4%, 3.6% and 3.5% in the October meeting, respectively. In the scenario known as hybrid 1 (which assumes constant exchange rate and interest rate according to the Focus survey), estimates will likely increase to 3.8% in 2019 (from 3.4%), 3.9% in 2020 (from 3.7%) and 3.7% in 2021 (from 3.6%).

 We expect the Copom to cut the Selic rate by 50 bps to 4.50% p.a. We see no risk of excessive inflation in the relevant monetary policy horizon, even considering the continuing rebound in economic activity, recent price shocks and a weaker currency. Given this scenario and assuming a decline in the neutral real interest rate, we see room for further monetary stimulus. Thus, we expect even lower interest rates ahead, with the Selic rate at 4.5% by the end of 2019 and 4.0% in 2020. However, as the easing cycle comes to an end, the message from the Central Bank's inflation forecasts will be particularly relevant to assess the degree of additional monetary stimuli that the committee expects to implement in the future. The authorities are likely to signal in their statement that they contemplate additional adjustments to the Selic rate, but without committing to these adjustments and emphasizing that the next decisions will be data-dependent.


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



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