Itaú BBA - Copom Minutes: 75-bp cut ahead, despite fiscal risks

Macro Brazil

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Copom Minutes: 75-bp cut ahead, despite fiscal risks

mayo 12, 2020

We understand that the focus on the inflation target and on falling expectations points towards another 75-bp move in the next meeting


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

 

 The Copom minutes provide the rationale for the decision to cut 75bps in the last meeting, and bring additional information on how the authorities are assessing the current crisis. The text indicates that the committee sees the pandemic and its economic effects as a shock that is intensely disinflationary in the relevant policy horizon. The committee duly notes the risk of fiscal deterioration, but indicates that as long as inflation expectations remain unaffected, these risks are not enough to change policy decisions. There is discussion of a lower bound for the Selic rate, but we reckon that focus on the inflation target and on the likely continuing fall in inflation expectations dominates, and points towards another 75-bp move in the coming (June 16-17) Copom meeting, that would take the base rate to a resting place of 2.25% p.a. Of course, as noted by the authorities, forecasts now are enveloped by higher-than-usual uncertainty.


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



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