HALISTER1: BCB Seen Signaling 50bp Cut; Politics Main Hurdle, Analysts Say

BCB Seen Signaling 50bp Cut; Politics Main Hurdle, Analysts Say

(Bloomberg) -- While short-end DI rates drop after BCB reinforced market expectations for faster easing, longer swaps rise with real weakness reflecting political uncertainty.
  • Brazil’s weaker than previously expected economic activity, deep output gap open room for BCB to accelerate rate cuts by 50bps at the January meeting, from 25bps last week, Newton Rosa, chief economist at Sul America Investimentos says in a phone interview
    • BCB’s message also became “less emphatic” on external risks
    • Internally, main hurdle for BCB policy is the risk of reforms agenda being affected by Supreme Court’s preliminary decision to remove Senate President Renan Calheiros; continued risk aversion could drag BRL lower raising inflation pressures
  • A 50bp cut at BCB’s next meeting is a “done deal” after Tuesday’s minutes, Paulo Petrassi, partner and FI trader at Leme Investimentos says
    • DI rates could drop more after minutes; political turbulence is tuning down the move, Petrassi says
    • Calheiros’ removal revives the political tension; potential new Senate leader, Jorge Viana, does not seem committed to reforms
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Jorge Viana ((BRA)Senate)
Newton Rosa (Sul America Cia Nacional de Seguros)
Paulo Petrassi (Leme Investimentos Ltda)
Renan Calheiros (Federative Republic of Brazil)

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