Halister News

(Bloomberg) -- Swap rates mkt cutting bets on Selic hikes reflects divergence between BCB views on inflation and fiscal policies and more skeptical investor assessments, Flavio Serrano, economist at Haitong says in a phone interview.

• NOTE: Rate hike priced in on DI curves dropped to 5.87bps from 11.61bps on Friday
• BCB holds premise poor activity will have a deflationary impact, that govt will meet budget surplus goal; mkt skepticism has proven to be more realistic in recent years, Serrano says
  • Serrano sees CPI at 6.9% in 2016, over the 4.5% +/-2ppt target, and 5.7% in 2017, near high end of target, as next year the range of target will narrow to 1.5ppt from 2ppt
• NOTE: BCB said in its inflation report, released in Dec., that CPI could slow to 6.2% in 2016 and 4.8% in 2017; in last minutes, it said that, in a relevant horizon, the fiscal policy tends to shift to neutral zone or even to a restraint area
• CPI may slow as mkt sees a continued recession and smaller BRL depreciation in 2016; upside risks for inflation are the broad indexation of the economy and the deterioration in mkt expectations on fiscal policy, Serrano says
• “As the economy remains indexed, the high inflation of 2015 will influence the number of 2016”
• Serrano forecasts BRL at 4.40 in yr-end; sees BCB cutting Selic to 13.25% from current 14.25% by Dec.