Brazil: BCB to hold on rates at 14.25% - TDS

Research Team at TDS, expects the BCB to hold on rates at 14.25% and also this is likely to be the last meeting presided over by BCB President Tombini, politics-depending.

Key Quotes

“Thus this is likely to be a “caretaker” monetary policy decision where we shouldn’t expect much indication of an upcoming policy shift from the BCB, considering the regime change at the central bank. However, we do expect the Goldfajn-led BCB (assuming he makes it through the senate confirmation process) to ease rates in Q4, less aggressively than the market currently prices, thanks to still troublesome underlying inflation dynamics.

IPCA inflation is expected to remain stable near 9.3% Y/Y in May, indicating that disinflationary momentum in the economy has is potentially lessening from earlier this year. The underlying diffusion index on a 12-month m.a. basis has fallen from its peak but still sits at 70.5, indicating that a little less than 2/3rds of prices in the index are still increasing. This should support the view that we don’t expect rate cuts until Q4 of this year.”