28 Apr 2015
Brazil expects further rate hikes – Rabobank
FXStreet (Edinburgh) - According to strategists at Rabobank, the Brazilian central bank could take the key SELIC rate to the 13.50% level in the next months.
Key Quotes
“The last COPOM decision revealed a 50bp hike which followed the 125bp of hikes seen since the tightening cycle was restarted last October. Although this move was expected, in the run up to the 26th March release of the Quarterly Inflation Report, markets began to price out expectations of continued rate hikes from the BCB”.
“In terms of currency induced realignment, BRL lost nearly 18% against USD in the move up to the USD/BRL high of 3.31 from the start of the year to 20th March. Since that juncture BRL has posted an impressive recovery to below the 3 handle”.
“In recent speeches, BCB Governor Tombini and the Director of Economic Policy, Luiz Awazu, have both reiterated that the Bank will remain vigilant and monitor the second round effects of price realignment on headline inflation in the coming months”.
“The most recent price pressure data point to some resilience in the headline and inflation and give us even more confidence in our call for the next moves in terms of policy rates”.
“We expect a 50bp hike this week before a final hike of 25bp at the 3rd June meeting taking the SELIC up to 13.50%. As it stands this is broadly what is being priced into the DI curve although the Bloomberg consensus of analyst forecasts shows a median expectation of a 13.25% terminal rate”.
Key Quotes
“The last COPOM decision revealed a 50bp hike which followed the 125bp of hikes seen since the tightening cycle was restarted last October. Although this move was expected, in the run up to the 26th March release of the Quarterly Inflation Report, markets began to price out expectations of continued rate hikes from the BCB”.
“In terms of currency induced realignment, BRL lost nearly 18% against USD in the move up to the USD/BRL high of 3.31 from the start of the year to 20th March. Since that juncture BRL has posted an impressive recovery to below the 3 handle”.
“In recent speeches, BCB Governor Tombini and the Director of Economic Policy, Luiz Awazu, have both reiterated that the Bank will remain vigilant and monitor the second round effects of price realignment on headline inflation in the coming months”.
“The most recent price pressure data point to some resilience in the headline and inflation and give us even more confidence in our call for the next moves in terms of policy rates”.
“We expect a 50bp hike this week before a final hike of 25bp at the 3rd June meeting taking the SELIC up to 13.50%. As it stands this is broadly what is being priced into the DI curve although the Bloomberg consensus of analyst forecasts shows a median expectation of a 13.25% terminal rate”.