Brazil: Neutral bias from BCB, rates unchanged - Rabobank

In Brazil, the Copom has kept the benchmark Selic rate at historical low of 6.50% p.a. yesterday as per market expectations, notes the research team at Rabobank.

Key Quotes

“In the communiqué (possibly the last under leadership of Governor Ilan Goldfajn), the BCB kept a neutral bias for the next policy steps (i.e. to hold rate flat) and retained an assessment of asymmetrical (i.e. upwardly skewed) inflation risks for now.”

“The newly updated IPCA simulations point to inflation below the centre target for the relevant policy horizons, even after pushing expected rate hikes back to 2020. That reaffirms a scenario of low Selic rate for long if macro reforms go through. For now, we see more chances of further delays in (normalizing) rate hikes than of actual rate cuts. But that could change.”

“Our scenario projects a gradual activity recovery across 2019 – taking real GDP growth up to 2.2% this year, from (an expected reading of) 1.3% last year – so that inflation ends 2019 at 3.9% (2018: 3.7%). We believe that is consistent with BCB on hold at 6.50% until 2020.”