Brazil: Looking for a final Selic rate cut with a "hawkish" statement - Rabobank

Analysts at Rabobank point out that for the week of Mar 12 – 16, the BRL weakened 0.6% (to 3.28/USD), similarly as Latam and commodity-producing peers and the BRL’s drop follows a stronger USD and declines in materials (e.g. agri, metals). Brazil FX continues to show a complete absence of local catalysts, they further add.

Key Quotes

“The local yield curve was also influenced by external markets, showing a flattening pattern: the sell-off on the front end contrasted with a rally on the back end. This behaviour also reflects market interpretations on remarks by BCB authorities, hinting that rate cuts beyond March could be less likely (we will know the new flight plan later this week).”

“The macro calendar highlights the Copom policy meeting on Wednesday, for which we expect cut of 25bps in the Selic rate, reaching a new historical low (6.50%).”

“This decision is widely expected, so the market will focus on the forward guidance in the communiqué: we look for a relatively hawkish tone, not closing doors on further easing but setting the bar high (in terms of scenario change) for cuts in subsequent meetings.”

“The week also features reports on activity, inflation and balance of payments (see details in the agenda).”