Brazil: Expect the BCB to cut by 75bps – TDS

Research Team at TDS expects the BCB to cut by 75bps, on the back of both rapidly declining “core” inflation aggregates that have shown increased responsiveness to tight monetary conditions (such as non-regulated, non-tradable inflation) and the sluggish economic recovery.

Key Quotes

“Ultimately we believe that the BCB will aim to get the real (ex-ante) SELIC rate down to somewhere near the average of the past decade (below 6%) before pausing. This implies another 75bp cut after this week’s meeting, with the pace of easing tapering after to 50bps and eventually 25bps to bring us to the end point of 9.75% in the SELIC by the end of the year.”

“We think that there could be some downside risk to this view (more easing) on the end of year rate, and also some risk that the BCB cuts by 100bps. The mid-month February IPCA will be released before the meeting and should help colour the BCB’s communication bias, thought the market is expecting another significant disinflationary print at 5.4% Y/Y.”