HALISTER1: Brazil Market Lifts Bets on Rate Cuts Amid Reforms, CPI Outlook

Brazil Market Lifts Bets on Rate Cuts Amid Reforms, CPI Outlook

(Bloomberg) -- Brazil swap rates are falling for a 6th day in a row and investors are raising bets on a BCB rate cut as the outlook for fiscal reforms improve and amid fresh signs of easing inflation.
  • Among three factors cited by BCB as conditions for a cut, two -- food inflation and reforms -- have seen outlook improve, David Beker, Chief Brazil Economist & Strategist at BofAML, says in a phone interview
    • Food prices have slowed significantly in recent private surveys conducted by banks in Brazil; on political side, there have been increasing signals that a spending cap bill may be approved
  • NOTE: DI rates price in 144bps cut by February vs 124bps on Sept. 14; cut projected for Oct. 19 BCB meeting is now 18bps vs 12bps a week before
  • First move in November looks more likely at this stage, Neil Shearing, chief EM economist at Capital Economics, says
    • “We’ll find out more about food inflation with tomorrow’s IPCA-15 data, but my sense is that it’s better for policymakers to play a waiting game for now”
  • While cut is more likely in November, October meeting is not off the radar, Eduardo Velho, economist at INVX, says
    • U.S. Fed rate stability may help BCB to cut; “Should we have no worsening on inflation side and the Lower House commission vote the fiscal spending cap bill, the BCB may start the cycle”
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
David Beker (Bank of America Corp)
Eduardo Velho (Invx Global Partners)
Neil Shearing (Capital Economics Ltd)

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