Itaú BBA - Evening Edition – All eyes on tomorrow’s Copom decision

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Evening Edition – All eyes on tomorrow’s Copom decision

Março 17, 2020

Tomorrow, the Copom decision will be announced at 6:00 PM.

Talk of the Day


The BCB auctioned USD 2 billion in FX credit lines during the morning.

Coronavirus update: the latest official information from the Ministry of Health is that Brazil has 291 confirmed coronavirus cases, with the first death registered today, in São Paulo. Reports by sub-national health entities point to a slightly different count, at 301 cases. Moreover, the city of São Paulo and the state of Rio de Janeiro declared state of emergency, increasing restrictions for public services and events, besides new public health measures.

Tomorrow’s Agenda: The Copom decision will be announced at 6:00 PM (SP time). In a context of extreme market volatility and quickly changing perceptions about the COVID-19’s toll on the global economy, we forecast a 25-bp cut, taking the Selic rate to 4.00%. However, we acknowledge the risk that the committee may choose differently, depending on market conditions by the meeting time, how the pandemic evolves and – very importantly – what the Fed decides in their own meeting, just a couple hours beforehand.


In an effort to improve the transparency of the Treasury's particpation in the local exchange market, the finance ministry modified the mechanism used to sell dollars, effective from April. The estimated financing need of the central government for this year is USD 17.5 billion, with financing from the projected sale of assets set at USD 9.4 billion (of which USD 2.6 billion has already been undertaken). The currencies would be auctioned by the treasury through a widely used exchange market system. For the month of April, the Treasury aims to auction an amount up to USD 0.5 billion per week. Details regarding the auction procedure will be published in coming weeks. The results of each auction will be made available. The sales of foreign exchange denominated assets along with a higher percentage of USD denominates debt issuance, in conjunction with the central bank's foreign exchange intervention program (available until next year) would help limit the depreciatory pressures on the CLP.

Tomorrow’s Agenda: The central bank will publish GDP data for the final quarter of 2019 at 8:30 AM (SP time). Activity at the close of 2019 reflected a faster-than-expected normalization following the protest-affected months of October and November. Nevertheless, activity in the quarter was likely the worst since the global financial crisis. According to the monthly GDP proxy (Imacec), activity likely dropped 3.5% qoq/SA, leading to 1.8% yoy drop (+3.3% in 3Q19). The decline was probably led by consumption as services were significantly disrupted in the quarter, while the sharp drop in business sentiment is expected to translate in an investment halt. The central bank will also publish the 4Q19 current account balance. A USD 3.1 billion deficit was recorded in 3Q19 (USD 85 million wider than 3Q18). The CAD increased from last year due to a larger trade deficit in goods and services and smaller transfers, while the income balance improved. The rolling four-quarter deficit was USD 10.2 billion (3.6% of GDP), the largest deficit since 2013 (3.1% of GDP). In 4Q19, the more rapid weakening of imports amid distressed domestic demand led to a rising trade surplus that will support a narrowing of the current account deficit. The increased trade surplus for goods would be partly countered by somewhat higher copper prices increasing the income deficit. Overall, we expect the current account deficit to be USD 2.2 billion, USD 1.4 billion narrower than in 4Q18 and leading to a 3.2% of GDP for 2019 (similar to 2018).

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