20180620-法国巴黎银行-Brazil__COPOM_in_no_rush_to_review_strategy_8页_405kb

Brazil: COPOM in No Rush to Review Strategy Summary

Core Content

The document discusses the recent monetary policy decision by the Brazilian Central Bank (BCB) and provides analysis on the implications of the decision for interest rates and inflation outlook. It is authored by Gustavo Arruda, an economist at Banco BNP Paribas Brasil SA, and outlines the central bank's stance, market expectations, and future outlook.

Main Points

• Interest Rates Decision: The BCB kept the Selic rate at 6.5% for the second consecutive time, aligning with the authors' expectations.
• Policy Statement: The statement emphasized a data-dependent approach, with future decisions linked to inflation expectations and the balance of risks to the baseline scenario. It avoided clear forward guidance, which is a departure from previous practices.
• Focus on 2019: The policy statement highlighted that the BCB's focus is on the second-round effects of recent shocks, and its decision was based primarily on the inflation outlook for the end of 2019.
• Market Expectations: Markets had initially priced in a rate hike of 25 basis points or more, but most economists, including the authors, expected the BCB to remain on hold due to low inflation, contained inflation expectations, and a large negative output gap.
• Future Outlook: The authors believe that interest rates will stay low for the foreseeable future, supported by cyclical factors and potential structural changes in the credit market. A rate hike would only occur if there is clear evidence of second-round inflationary effects from current economic conditions.

Key Information

• Inflation Trends: The IPCA inflation rate remains low, with the BCB closely monitoring inflation expectations.
• Output Gap: A significant negative output gap suggests that the economy has room for growth, supporting the maintenance of low interest rates.
• Fiscal Policy: The fiscal policy is described as less expansionary, which contributes to the continued low rate environment.
• Forward Guidance: The BCB has shifted towards a more data-dependent approach, with no clear forward guidance provided in this meeting.
• Minutes Publication: The minutes of the policy meeting are scheduled to be published on 26 June, which could provide further insight into the central bank's reasoning.
• Market Positioning: The authors are positioned in receivers for FRA jan-20s/21s and FRA jan-22s/23s, suggesting a positive outlook for these instruments.

Charts Mentioned

• Chart 1: Selic rate (annualized) shows the rate has remained at 6.5%.
• Chart 2: IPCA inflation (year-over-year) indicates a low inflation environment.

Legal and Regulatory Disclosures

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Conclusion

The BCB's decision to keep interest rates unchanged reflects its assessment of current economic conditions, particularly low inflation and a large negative output gap. The central bank is focusing on 2019, emphasizing a data-dependent approach and avoiding clear forward guidance. The authors expect rates to remain low in the near term, with potential changes only if there is a clear second-round inflationary impact. The document serves as a marketing communication and is subject to various legal and regulatory disclosures.