18 Feb 2015
Further monetary tightening expected in Brazil – Scotiabank
FXStreet (Edinburgh) - Eduardo Suarez, Senior Currency Strategist at Scotiabank, sees the Brazilian central bank (BCB) implementing further rate hikes in the upcoming months.
Key Quotes
“We had underestimated the extent of the BCB’s tightening cycle, based on the view that inflation expectations would stabilize. However, we were wrong”.
“Our sense is that continually rising inflation expectations, despite the BCB’s tightening, results from a combination of uncertainty over fiscal policy, as well as a monetary policy that is trailing inflation expectations as opposed to “getting in‐front of them”.
“We believe that correcting this trend will require the BCB to accelerate the pace of its rate tightening to +50bps increments, which is increasingly the view priced into Dis”.
“Our base case is that the BCB will deliver 2 X 50bps hikes, followed by 2 X 25bps increments (an interesting possibility, is that the BCB may deliver a greater rate shock to anchor expectations).
Key Quotes
“We had underestimated the extent of the BCB’s tightening cycle, based on the view that inflation expectations would stabilize. However, we were wrong”.
“Our sense is that continually rising inflation expectations, despite the BCB’s tightening, results from a combination of uncertainty over fiscal policy, as well as a monetary policy that is trailing inflation expectations as opposed to “getting in‐front of them”.
“We believe that correcting this trend will require the BCB to accelerate the pace of its rate tightening to +50bps increments, which is increasingly the view priced into Dis”.
“Our base case is that the BCB will deliver 2 X 50bps hikes, followed by 2 X 25bps increments (an interesting possibility, is that the BCB may deliver a greater rate shock to anchor expectations).