20181212-法国巴黎银行-Brazil_monetary_policy__No_rush_to_hike_7页_566kb

Brazil Monetary Policy Summary

Core Content

On 12 December 2018, the Brazilian Central Bank (BCB) decided to keep the Selic rate unchanged at 6.5%, as widely anticipated. This decision marks the sixth consecutive time the rate has remained at this level. The BCB's policy statement indicates that the inflation outlook has improved and that the balance of risks is more favorable, suggesting that there is no immediate need to raise interest rates.

Key Points

• Interest Rate Decision: The BCB kept the Selic rate at 6.5%, maintaining the current record low.
• Inflation Outlook: According to BCB models, inflation is expected to be 3.6% by the end of 2020, which is below the 4.0% target. An alternative scenario, where the Selic rate and USD/BRL remain flat, projects inflation to hit the target.
• Risk Assessment: The BCB noted a reduction in the risk of a negative output gap holding inflation below target and a decrease in the risk of delaying necessary reforms.
• Policy Outlook: The next monetary policy meeting is scheduled for 5 February 2019, and it is likely to be chaired by Mr. Goldfajn. The central bank is expected to remain on hold for an extended period.
• Market Implications: Market participants will closely monitor the release of meeting minutes (18 December) and the quarterly inflation report (20 December) to assess the likelihood of alternative scenarios.
• New Governor: The incoming central bank governor, Mr. Campos Neto, is expected to influence future policy decisions once he assumes office in March 2019. His reaction function will be a focus for market observers.

Trade Idea

• The strategy team suggests that the longer-dated segments of the yield curve (Jan-21 to Jan-22) have potential for compression.
• They maintain a long position in NTN-F 2023, indicating a preference for longer-term local bonds.
• The document recommends diversifying into local bonds, highlighting the favorable inflation outlook and the BCB's cautious stance.

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