Halister News

(Bloomberg) -- “Despite the fact that the inflation curve has finally bent down, helped by the recession but also by a favorable food supply shock and the lagged impact from currency appreciation, there are limits on how much the central bank can cut in this cycle without jeopardizing the achievement of the inflation target in 2018, and also 2019 when the target midpoint may be lowered to possibly 4.25%”, Goldman Sachs’ chief Latin America economist Alberto Ramos writes in report.

• There are natural limits to what a responsible inflation targeting central bank can deliver in terms of rate easing
  • Ramos highlights that ’’despite an almost three-year- long, severe recession that generated a large negative output gap and significant slack in the labor market, services inflation is still tracking at 5.94% and core- services still printing above 5%’’
• “We acknowledge that it is quite possible that the Copom cuts and drives the Selic policy rate into clearly stimulative territory before the end of 2017, but that would increase the risk that rates would need to be moved up back to neutrality at some time during 2H18 in order to keep projected inflation over the relevant horizon for monetary policy broadly aligned with the inflation target”
• NOTA: Brazil inflation slows below target for first time since 2010