HALISTER1: Brazil May See Bigger Rate Cut If Prices, Reform Allow: Analysts

Brazil May See Bigger Rate Cut If Prices, Reform Allow: Analysts

(Bloomberg) -- An official measure of Brazilian prices, the IPCA due Friday, may reinforce the case for a wider BCB rate cut if easing inflation coincides with substantive progress on reforms, analysts say.
  • September CPI, forecast to slow to 0.2%, is compatible with a 25bps Selic cut at October’s BCB meeting, Joao Souza Fernandes, economist at Quantitas, says in a phone interview
    • “Food prices are likely to be the main driver for the inflation slowdown”
  • NOTE: Sept. IPCA m/m, est. 0.20%, prior 0.43%
    • A “combination of factors” such as the spending cap bill being approved without changes in Lower House, or a CPI of 0.2% or below with services prices slowing down, could lead market to expect a 50bps cut in October, Fernandes says
    • Wide support for spending cap bill, potentially likely to be approved with 380-400 votes in Lower House according to newspaper Globo, would be seen as a “strong signal” that Temer govt has support to pass broad reforms in Congress
  • NOTE: Swaps rates price in 33bps cut at Oct. BCB meeting, meaning traders split between 25bps-50bps cut
  • Sept. CPI may show more benign services inflation, reflecting weak activity and the end of Olympic Games, Jose Antonio Pena, chief-economist at Portopar Dtvm, says
    • “The chance of a 50bps cut have been increasing as the three points mentioned as conditions by Copom are evolving”
  • NOTE: BCB has signaled that monetary easing depends on food and services prices ease, along with fiscal policy improvement
    • BCB’s Goldfajn earlier today said there is no pre- established schedule to lower the key rate
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Ilan Goldfajn (Banco Central do Brasil)
Jose Pena Garcia (Portopar Dtvm Ltda)
Michel Temer (Federative Republic of Brazil)

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