Brazil: Cutting 100bps for the time being - Rabobank

Mauricio Oreng, Senior Brazil Strategist at Rabobank, notes that the Copom cut the benchmark Selic rate by 100bps to 11.25% p.a., in line with a vast majority of analysts (Rabobank included) and the yield-curve pricing.

Key Quotes

“In the statement, the BCB argues that this “moderate intensification of the pace of monetary easing” is appropriate “at this time”, yet the current context warrants “monitoring” the developments affecting this “frontloading of the cycle”.”

“As per the cycle’s extension, the Copom kept the message that the depth of cuts will hinge on estimates of structural interest rate (which the BCB will continuously reassess) and the evolution of the economic scenario (i.e., real activity, current/expected inflation and risks).”

“We keep our end-2017 Selic rate estimate at 8.50% and project residual adjustment in 18Q1 to 8.00%. Risk-wise, we do not rule out even lower levels for this cycle, as the huge economic slacks could pressure actual rate below neutral for some time.”