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BCB steps up FX intervention

Março 6, 2020

Despite these interventions, the BRL depreciated 1.57% to 4.65 per dollar

Talk of the Day


The BCB intervened in the FX market for three times yesterday, totaling an offer of 60.000 swap contracts (USD 3 billion). Despite these interventions, the BRL depreciated 1.57% to 4.65 per dollar (the intraday peak was 4.67). A new intervention is scheduled for this morning (9:30 AM), with 40,000 swap contracts (USD 2 billion).

Coronavirus update: The Ministry of Health confirmed four new coronavirus cases in Brazil, two of them locally transmitted. Before today, all confirmed cases in Brazil were on people who had been to countries with high contagion rates. There are now eight confirmed cases in Brazil, and 636 under analysis. In all, the coronavirus outbreak keeps surging worldwide, leaving severe market losses in its wake. Locally, the Ibovespa plummeted 4.65%.

Day Ahead: February’s Anfavea auto production will be published at 11:20 AM (SP time). This is an important coincident indicator for industrial production.


New cut in reference interest rate. The central bank cut the Leliq rate to 38% from 40% supported by tough capital controls. In a short statement, the monetary authority said that the decision was adopted due to a consolidated disinflation process and to boost the economic activity. The monetary authority added that for the moment there is not strong evidence of exit from recession, despite some improvement in several indicators. Since the new administration took office in December, the Leliq rate fell by 2,500 bps.

Manufacturing and construction indexes posted mild sequential expansion in January. Manufacturing grew 1.5% mom/sa in January (-3.3% qoq/saar). On a year-over-year basis, the index fell 0.1% in January and 1.2% yoy in the quarter ended that month. The sectors showed mixed behaviors. The automotive industry, the food industry and refinery posted increases, while textiles, minerals and furniture showed a drop. Construction rose by 0.4% mom/sa (-29.7% qoq/saar). According to the qualitative survey, 54% of the companies involved in public works expect activity to decrease in the February – April period, compared with 33% in the case of companies involved in private works.


In February, inflation came in at 0.67% mom, slightly above our 0.65% forecast and in line with market expectations. Education (+4.78%; contributing 21bp), housing (+0.47%; 16bp) and food (+0.93%; 14bp) divisions were the main contributors to price gains in the month. Countering price gains was communications (-0.10% mom). The monthly gain lead to an annual inflation acceleration to 3.72% (3.62% in January), lifted by housing costs. Meanwhile, inflation excluding food and energy prices inched down to 3.29% (3.37% in the previous month). Within this group, durable goods, which include an important tradable component, remain a drag to inflation as they just gained 1.86% (broadly stable from January). Meanwhile, non-durable goods inflation accelerated to 4.70%, from 4.24% previously. A modest growth outlook and well-behaved inflation expectations support our call for inflation to end the year at 3.3% (3.8% in 2019).


Stable wage-bill growth despite slowing real wages in January. According to National Institute of Statistics (INE), nominal wages grew 4.7% YoY in January (4.5% in December), resulting in some moderation of the real wage growth, to 1.2% (1.6% previously), amid increasing inflation. In the quarter ended in January nominal wages grew a stable 4.5%. The real wage bill growth (considering only salaried employment), came in at 4.5% in the quarter (4.3% previously), supported by still robust job creation. Despite still favorable data, the challenging activity outlook means some labor market loosening (in terms of lower wage and employment growth), is expected ahead. 

Consumer confidence in February continued to edge away from the historic lows recorded at the backend of last year (during the peak of the protest action), yet sentiment remains significantly strained, in line with subdued consumption growth. The GFK consumer confidence index retreated 13.6pp over twelve months to reach a lowly 32.7 points. Nevertheless, the annual decline was somewhat milder than the 16-point drop on average in the prior three months, and the third consecutive monthly improvement from the 28.3 low registered in November. All five sub-indexes remain below neutral levels, with the main drag coming from the 5-year economic outlook (26.1 points), while the current economic evaluation sits at 30.5 points (an 18.3pp drop over twelve months). Meanwhile, the twelve-month economic outlook is the least pessimistic sub-index but is notably low at 37.6 points, 15.0pp down from last year. Still depressed private sentiment, alongside a loosening labor market and falling imports of consumer goods underscore the expected strain on consumption activity going forward. Beyond weakened sentiment, consumer loan growth in February slowed to its lowest rate (2.7% yoy) since the global financial crisis. Imports of consumer goods continue to fall, and while the increase in the unemployment rate is modest considering the significant disruption to operations in 4Q19, there are signs that additional loosening could come. In sum, while the economy has rebounded much faster than expected from the October shock, the outlook remains challenging given still elevated domestic uncertainty and developments in the global economy (related to the spread of the coronavirus). We see growth of 1.2% this year, in line with last year.


Day Ahead: The Statistics Institute (INEGI) will announce December’s gross fixed investment at 9:00 AM (SP time), which we expect to decrease 0.1% YoY (from -3.5% in November). On an annual basis, construction output, a coincident indicator, remained weak, while imports of capital goods recovered (but kept contracting).

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