Itaú BBA - Copom releases the minutes of its latest monetary policy meeting

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Copom releases the minutes of its latest monetary policy meeting

Fevereiro 11, 2020

We will publish an in-depth report on the minutes later today.

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The Brazilian Central Bank's Monetary Policy Committee (Copom) has just published the minutes of its latest monetary policy meeting, held last week. In the occasion, the committee decided to lower the Selic rate to 4.25% p.a., a 25-bp cut, in line with our expectation and the market consensus. We will publish an in-depth report on the minutes later today.

Traffic of heavy vehicles on toll roads (ABCR) increased 1.4% mom/sa in January. On an annual basis, the indicator advanced 0.5% yoy. After this print, our preliminary forecast for January’s industrial production improved to 0.1% mom/sa, from 0.0% mom/sa.

The BCB released yesterday its weekly survey with market participants (Focus). The median of IPCA inflation expectations for 2020 has been revised downwards for the sixth consecutive week, reaching 3.25% in its latest print (from 3.40% in the previous week). January’s IPCA inflation numbers, particularly the deflationary bias from the beef-price-related shock, underscore this week’s Focus result as well as the benign trajectory for inflation going forward. IPCA inflation expectations for 2021 and 2022 remained flat at 3.75% and 3.50%, respectively. The median of year-end Selic rate forecasts remained flat for the three years horizon (2020 – 2022): at 4.25% for 2020, 6.00% for 2021 and 6.50% for 2022. Similarly, the median of GDP growth expectations did not change: 2.30% for 2020 and 2.50% for both 2021 and 2022.On the exchange rate front, expectations remained at BRL 4.10/USD for 2020 and 2022, while it has oscillated to BRL 4.10/USD for 2021 (from 4.05).

Macro Scenario: We maintained our GDP growth forecasts at 1.2% in 2019, 2.2% in 2020, and 3.0% in 2021. Economic activity is on a moderate upward trend despite weak data in November and December 2019. On the fiscal side, our primary deficit estimates stand at 1.0% of GDP for 2020 and 0.5% of GDP for 2021. If government spending remains under control, public debt as a share of GDP is likely to decline in the coming years. We maintained our exchange rate forecasts at BRL 4.15 per USD in 2020 and 2021. Our inflation estimates remain at 3.3% this year and 3.5% next year. The central bank's Monetary Policy Committee (Copom) cut the benchmark Selic rate to 4.25% p.a in February, and signaled the interruption of the easing cycle. Hence, we expect the Selic rate to remain stable throughout the year, at 4.25% p.a. ** Full story here.


Day Ahead: The Statistics Institute (INEGI) will publish the industrial production for December. We estimate the indicator fell by 0.2% year-over-year (from -2.1% in November), consistent with the 4Q19 GDP flash estimate. We expect the mining sector to improve, associated to a slight recovery in oil output. On the other hand, we expect the manufacturing sector to decelerate further, while construction output remained weak.

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