BCB PREVIEW: Investors Eye Rate Cuts in 2H If Govt Changes
(Bloomberg) -- Even though Brazil central bank is expected to hold benchmark Selic rate at 14.25% for the 7th consecutive meeting, potential govt change may open room for cuts in the second half, according to economists.
- BCB announces rate decision after-markets Wednesday
- All 49 economists surveyed by Bloomberg forecast a hold decision; DI market mostly prices in rate unchanged
- Post-decision statement may change, showing that dissenting Copom members Tony Volpon and Sidnei Marques voting for stability as inflation risks have been mitigated, Banco Fibra economist Cristiano Oliveira said
- NOTE: Volpon and Marques voted for rate hike at last meeting
- Vote change may be ’’first step’’ toward cut in the future, even if BCB avoids further signals
- Decline in inflation expectations and core gauges, coupled with BRL strengthening are positive for prices scenario
- Forecasts potential four 50-bps cuts this year, starting in July
- “We are assuming that a new government will pick an orthodox economic team. Fiscal and monetary policies may support one another. Today, the fiscal policy doesn’t contribute”
- Modal Asset Management treasurer Luiz Eduardo Portella also expects four 50-bps cuts in 2H, depending on the next BCB president; “our view is based on a government change”
- “Copom’s statement should show a different result. It should be neutral, eliminating the sign that two directors voted for a 50bps hike”
- Data released since last meeting point to a less complex monetary policy scenario, with economic activity still declining and inflation expectations starting to recede, Itau, Brazil’s biggest private bank, says in report signed by economists including Ilan Goldfajn
- “This improvement, alongside the recent exchange rate appreciation, will likely reduce the Copom’s inflation forecasts”
- NOTE: Senate likely to approve President Rousseff’s impeachment motion in mid May, surveys held by country’s main newspapers show; VP Temer, potential new president, is in contact with former BCB Meirelles and other names seeking to form his economic policy team
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Cristiano Oliveira (Banco Fibra SA)
Dilma Rousseff (Federative Republic of Brazil)
Ilan Goldfajn (Itau Unibanco SA)
Luiz Portella (Banco Modal SA)
Michel Temer (Federative Republic of Brazil)
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