BCB PREVIEW: Rates Seen On Hold Amid Recession; Real Policy Risk
(Bloomberg) -- Central bank is likely to keep the benchmark rate unchanged, relying on its view that the recession, combined with a global slowdown, may help slow inflation. BRL weakening is risk to policy this year, economists say.
- Of 26 economists surveyed by Bloomberg, 25 see Selic stable at 14.25% at March 1-2 BCB meeting; one sees 50bps increase
- DI rates curve point for on-hold policy through year-end; bets on hikes were erased after governor Tombini said ahead of Jan. meeting that an IMF report cutting Brazil growth forecast was “significant”
- Data and BCB comments since the previous meeting suggesting there is no room for monetary easing, reinforce the view that Selic will be held this week, Itau economists including Ilan Goldfajn write in report
- BCB may start cutting in Aug. when inflation may be lower and amid higher unemployment and a deeper recession; weaker BRL may be a risk for this scenario, impeding rate cut
- “Here are substantial risks both external (global deceleration) and domestic (fiscal) which could cause a larger depreciation of the Brazilian real, putting pressure on inflation,” Itau says
- BCB is “clearly concerned” about economic activity; is likely to keep Selic stable and keep on-hold stance, Jose Antonio Pena, chief economist at Portopar Dtvm, says
- BRL current equilibrium around 4.00/USD is unstable; expects USD/BRL at 4.25 by year-end, with upside risk
- BofAML economist David Beker forecasts BCB will stay on hold for remainder of year as concerns about activity are weighing on the Copom, Beker writes in report
- While CPI expectations continue to move closer to 8%, BCB communication “keeps confirming a dovish stance”
- While BCB may keep Selic unchanged this week, the two dissenters from the last meeting may continue voting for a 50bps hike given “pressured inflation” in short term, Pedro Lutz Ramos, economist at Sicredi says
- NOTE: Brazil 2015 GDP data expected for Thurs., day-after Copom meeting; median estimates point to -3.9% in GDP 4Qtrs accumulated; economists at Focus survey see 3.45% contraction this year
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Alexandre Tombini (Financial Stability Board)
David Beker (Bank of America Corp)
Ilan Goldfajn (Itau Unibanco SA)
Jose Pena Garcia (Portopar Dtvm Ltda)
Pedro Lutz Ramos (Banco Cooperativo Sicredi/Brazil)
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