Itaú BBA - Copom Minutes: Busy BCB Day

Macro Brazil

< Volver

Copom Minutes: Busy BCB Day

marzo 23, 2020

We expect the Copom to cut again once the market situation calms down, taking the Selic to 3.25% p.a., not necessarily in the next meeting.


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

 

 The Copom just released the minutes of its policy meeting. The text brings updated analysis of the effects of the pandemic on the economy. The authorities highlight three effects. One is supply-side, related to disruption of supply chains due to measures aimed at stopping the spread of the disease. The second refers to shifts in commodity and asset prices, which may have ambiguous effects (lower oil prices vs pressured BRL). The third and, in the committee’s view, the most important one, is a negative shock to demand. Said shock in itself, according to the authorities, would have warranted a more aggressive rate cut, above the 50bps seen last week. However, the Copom also cautions that the outlook for monetary policy depends on continuing economic reforms, and notes that neutral interest rates may end up rising (if the response to the crisis leads to a deterioration of fiscal policy). We reckon they will probably cut again once the market situation calms down, taking the Selic to 3.25% p.a., not necessarily in the next policy meeting. 

 More importantly, the BCB announced a comprehensive set of measures to offer liquidity to the system. These may amount to 16.5% of GDP, compared to 3.5% in 2008 (but then, the BCB had more leeway on the Selic then than it has now). Useful and important measures that should provide some help to the system. The issue is not so much the system, but how to get funds to SMEs.


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



< Volver