Analysts at Rabobank note that the Copom cut the Selic (policy) rate by 25bps to 6.50% p.a., as widely expected.
“In the statement, the BCB sees as “appropriate” another move to 6.25% for the next meeting. Seeing a downward tilt in the balance of risks (even after lowering inflation estimates), the Copom saw space to stimulate the economy yet more than (we and) the markets were looking for.”
“While the BCB does not close doors on alternative policy reactions, conditional on the scenario evolution, we sense that the BCB set the bar a bit higher for further cuts subsequently (i.e. past the next meeting). This means a likely pause for June onwards.”
“We subjectively associate low probability for alternative outcomes (i.e. policy decisions) in this cycle: at some point (e.g., mid-2018) the BCB will put more weight on the outlook for 2019, for which the downside risks for inflation projections can also be offset by (increasing chances for) expectations of rate stability (at expansionary levels) for an even longer period.”
“We incorporate the BCB message and now look for Selic at 6.25% for end-2018 and 2019. We believe today’s decision reinforces our view that the consensus forecast of 8% Selic rate for end-2019 is overblown. That call has implications for the belly of Brazil’s nominal yield curve.”