Mauricio Oreng, Senior Brazil Strategist at Rabobank, notes that the Copom has trimemd the Selic rate by 50bps to 7.00% p.a., as widely expected and is the lowest level of nominal benchmark interest rate in Brazil since the implementation of the inflation targeting system (in 1999).
“In the statement, the BCB hint at another “moderate reduction of the pace of easing” (read a 25-bp cut to 6.75%) for the next meeting (February 6-7).”
“While the BCB leave a good deal of room for an alternative decision ahead, we believe the range of policy options has narrowed. We now see even lower probability for the Selic to reach 6.5% (or below) in this cycle.”
“Since we do not expect major changes/shocks until the next meeting, we take the Copom’s guidance and incorporate a new (25-bp) cut into our scenario for February. We now look for Selic at 6.75% for both end-2018 and end-2019. Given the small magnitude of the difference from our previous scenario (of 7% all the way) we continue to look for a normalization (or neutralization) of the monetary policy stance only in 2020, given the huge economic slacks.”
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