Itaú BBA - Evening Edition – All eyes on the Copom minutes to be released tomorrow

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Evening Edition – All eyes on the Copom minutes to be released tomorrow

Fevereiro 10, 2020

In the post-meeting communiqué, the committee delivered the widely expected 25-bp rate cut, taking the Selic rate to 4.25% pa.

Our LatAm Macro Monthly report was published today, featuring scenarios for Brazil, Mexico, Argentina, Chile, Colombia, Peru, the global economy and commodities. ** Full story here.

Talk of the Day

Brazil

The Copom will publish the minutes of its latest monetary policy meeting tomorrow, at 8:00 AM. In the post-meeting communiqué, the committee delivered the widely expected 25-bp rate cut, taking the Selic rate to 4.25% pa, and stated, clearly, that given the lagged effects of the easing cycle, it would be warranted to interrupt the process. It should be noted that, in their wording, the authorities’ opted for “interrupt” rather than “end”, which signals they may eventually, under appropriate circumstances, revisit the issue. The text suggested that easing might only resume if the inflation forecasts for 2021 begin to deviate from the 3.75% target. In that sense, tomorrow’s minutes will be important to learn more about the Copom’s forecasts and overall rationale.

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 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.

Mexico

Tomorrow’s Agenda: 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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