Itaú BBA - Copom Minutes: data dependent, with some dissent

Macro Brazil

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Copom Minutes: data dependent, with some dissent

diciembre 17, 2019

While the written text indicates a somewhat hawkish tone, we understand that inflation forecasts allow lower interest rates ahead.


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

 The Copom minutes, released this morning, indicate that the authorities remain data dependent, but with a somewhat hawkish tone. First, the authorities state that the economy is still working with sizeable slack, according to the unemployment rate and to “traditional” measures of capacity utilization in manufacturing – hinting that non-traditional ones may point otherwise. Second, forecasts are generally benign, but figures that had been deemed to be slightly below target are now depicted as being around target. Third, the committee unequivocally indicates that changes in capital and credit markets have strengthened the power of monetary policy (paragraph 13). Finally, the statement indicates that some committee members reckon that recent data releases and the changes in the credit and capital markets could lead the output gap to close at a faster pace than currently envisaged, which would lead to inflationary pressure.

 The communication (words rather than forecasts), in sum, seems consistent with a flight plan that would take the Selic to 4.25% pa by end cycle, or even leave it stable at 4.5%. For now, we keep our call that the end-cycle will be at 4% pa (on March 18, 2020), because we reckon inflation forecasts will allow such budget, while conceding that, at the moment, the authorities may have a different view.


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



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