HALISTER1: Brazil’s Lower CPI Goal May Postpone Rates Cut to 2018: AZ Quest

Brazil’s Lower CPI Goal May Postpone Rates Cut to 2018: AZ Quest

(Bloomberg) -- BCB’s first rate cut could only come in first half 2017 if the National Monetary Council in a meeting later today lowers the CPI target for 2018, Andre Muller, economist at AZ Quest Investimento, says in a phone interview.
  • “If this change happens, the Selic rate will stay unchanged for a longer period”
  • NOTE: Valor, one of the nation’s main newspapers, reported 2018 CPI goal may be cut to between 4%-4.25% from 4.5% in 2017
    • Meirelles, Goldfajn gather at Monetary Council meeting starting at 3pm local time
  • BCB’s latest inflation report showed CPI forecast at 4.2% in 2Q18 vs current 4.5% annual target in a scenario that implies rate held at 14.25%; in alternative scenario with a rate cuts, CPI for 2Q18 is estimated at 5.5%
  • NOTE: DI market traders scrapped bets on rate cuts in July and August after BCB this week reinforced commitment to bringing inflation in line with target
  • Eventual longer period of high rates in Brazil could lead to a stronger BRL amid lower external rates, Muller says
  • Reports on fiscal deficit from new government aren’t concerning markets since acting President Temer has stuck to his plans for structural reforms, such as spending cap and social security overhaul
    • Fiscal reforms, along with a more hawkish central bank, could mean higher rates in the short term and both lower inflation and rates in the long term, leading the country’s growth to recover
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Andre Muller (Quest Investimentos Ltda)
Henrique Meirelles (Brazil Secretaria do Tesouro National)
Ilan Goldfajn (Banco Central do Brasil)
Michel Temer (Federative Republic of Brazil)

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