Flash: Emerging Markets, Brazil outlook – TD Securities

FXstreet.com (London) - The research teams at TD Securities expect the BCB to deliver another +50bp in the Selic rate to 8.50%.

They said this will be in line with the almost unanimous consensus (one analyst expects +100bp), but we see a small chance of a larger 75bp hike. “A 50bp hike would see Selic rate set at +125bp above the historical low from earlier this year. Despite the fact that the pace of recovery continues to disappoint, the BCB is likely to keep raising rates, as fiscal and monetary policies have been too expansionary for too long, which fed into a fast growing consumer credit pipeline and high inflation.” The tea m suggest with fiscal policy remaining focused on stimulating economic growth, the onus of rebalancing the economy falls to the BCB. “To anchor inflation expectations, the BCB needs to deliver more pre-emptive action and so we expect a total of +175bp of hikes in three consecutive steps of +50bp starting in July then a final +25bp in November”.