HALISTER1: Brazil Backers of 50bps Cut See No Risk for BCB Credibility

Brazil Backers of 50bps Cut See No Risk for BCB Credibility

(Bloomberg) -- If the central bank cuts its key rate by 25bps or 50bps, the most likely outcomes, it is unlikely to damage BCB credibility, analysts say.
  • Most recent retail and services activity data pointed to a deeper and longer than previously expected recession, Carlos Kawall, economist at Banco Safra, who forecasts a 50bps cut, says in a phone interview
    • Inflation outlook has improved; next BCB quarterly report may show CPI even closer to target than in prior edition
    • All points cited by BCB as conditions for easing have advanced; spending cap bill passed in House’s first round may also have a fast track in Senate
    • Recent cut to fuel prices also helps to damp inflation; Petrobras new system of pricing signals potential for further cuts
    • “This central bank has no problem of credibility”; whether it cuts 25bps or 50bps, the market will react well, despite the possibility of some differences on the rates curve move depending on the size of cut, Kawall says
  • NOTE: Swap market prices in 34.38bps cut, showing a market marginally more split between 25bps-50bps cut compared to Tuesday, when figures where closer to 25bps
  • “There is a very low risk of the market reacting badly to the BCB decision,” Fernando Honorato, economist at Bradesco, second biggest Brazil’s private bank
    • Eventual 50bps cut would be in line with BCB communication, which has been transparent
    • Brazil economy is still in a process of deleveraging, with very high unemployment and families, companies cutting their debts, Honorato says
    • Should an economic rebound take more time, BCB cuts may be even deeper than currently expected
  • NOTE: BCB Cut of Either 25bps or 50bps Unlikely to Move BRL: Analysis
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Carlos Kawall Leal Ferreira (Banco J Safra)
Fernando Honorato (Banco Bradesco SA)

To de-activate this alert, click here

UUID: 7947283