Brazil: COPOM minutes reinforce dovish stance – Deutsche Bank

In opinion of analysts at Deutsche Bank, the COPOM minutes reinforced the dovish message conveyed by the communiqué, signalling another 100bp cut for the next meeting in September.

Key Quotes

“The minutes repeated the benign inflation forecasts reported by the communiqué, and suggest the BCB downplayed the effect of recent increases in regulated prices. Regarding the signal for the next meeting, the COPOM members concluded that they should signal "a possible easing of the same magnitude as the one implemented at the current meeting, but it will depend on the continuation of the conditions described by the COPOM’s base-case scenario and on estimates of the total cycle extension.” Therefore, should macroeconomic conditions remain broadly unchanged, we believe that the most likely scenario for the next meeting would be another 100bp rate cut.”

“In light of the central bank’s dovish bias, we now expect another 100bp rate cut at the next COPOM meeting and we are revising our year-end SELIC rate forecast to 7.25% from 8.00%. However, we are also raising our 2018 IPCA forecast to 4.4% from 4.2%. Although we still do not expect changes in the SELIC rate in 2018, there is a higher risk that the BCB may have to reverse course next year, especially if political risk associated with the presidential election increases asset price volatility and leads to a weaker exchange rate.”