Brazil: BCB to stay sideways, for as long as possible - Rabobank

Analysts at Rabobank point out that the Copom kept the Selic (policy) rate at the historical low 6.50% p.a. yesterday, as widely expected by analysts and the yield curve.

Key Quotes

“The communiqué brought a balanced tone, and the BCB has kept the same policy message. It will continue to monitor the baseline scenario, risks and assess the persistency of recent shocks (i.e. their second-round effects on CPI).”

“The policy focus remains on inflation expectations, real activity and balance of risks, with “no mechanical relationship between the shocks” and next policy decisions.”

“A noteworthy addition to the statement was in the risk assessment paragraph, where BCB officials see wide economic slacks creating [additional] downside risk for inflation.”

“Having established a dividing line between the FX shock and monetary policy, the Copom plan seems clear, despite the lack of a forward guidance.”

“The authority looks poised to keep interest rate at current level if exogenous forces do not derail future (expected) inflation from the targeted path, through secondary effects, contagion of expectations. Yet this scenario may continue to face challenge for the short term, at least until the elections.”