BCB Preview: The last cut in the cycle? (or a "déjà-vu"?) - Rabobank

Analysts at Rabobank suggest that the Copom announces interest rate on Wednesday (March 21) and the consensus (which we recently aligned ourselves to) looks for another 25-bp Selic cut to 6.50%, a new historical low.

Key Quotes

“Recent comments by the BCB – recognizing downside inflation surprises but expressing doubts about economic slacks – have shed light on the next steps (changing the previous short-term guidance). The interpretation is that the authority hinted at a probable cut in March, but apparently sought to curb expectations about further moves afterwards.”

“We look for a relatively “hawkish” wording in the communiqué. If on one hand the BCB will probably not close doors on further easing, on other hand the Copom could set the bar high (i.e. in terms of scenario change) for another reduction in May.”

“As per the medium term outlook, we reaffirm our view that the normalization in the policy stance – i.e. rate hikes towards a neutral (nominal) level assumed at 8.0% – is about to be completed only in 2020 (whereas consensus sees it for 2019). In our view, wide economic slacks, tame core inflation and future fiscal drags support this view.”