Analysts at Rabobank noted the forthcoming key event for EM's with the monetary policy committee of the Brazilian Central Bank (BCB) gathers to decide on the benchmark (Selic) interest-rate target, currently at 13.75%.
"The markets will see a live Copom policy meeting on Wednesday(January 11). While we stick to our call for a 50-bp Selic rate cut to 13.25%, part of the market projects a bolder move (-75bps). We see this is as a close call.
With analysts/market inclined towards a 50-bp move, we believe the BCB will chose to implement stimulus gradually. The idea is to minimize risks for inflation expectations, which have only recently converged towards 4.5% (after years strolling above the mid-target).
Both the decision and communication will be important to assess the next steps. For now, we keep our baseline scenario of Selic cuts to 11% this year and 9% next year, with risks skewed towards faster moves than we have pencilled in."