Investors are now almost certain there will be a Selic rate cut of 1% after the release of the Central Bank of Brazil’s Quarterly Inflation report.
Inflation between 3.9% and 4.6% from 2017 until the first quarter of 2019 and weaker GDP growth in both reference and market scenarios was the confirmation needed for markets to view a 1% rate cut as certain at the monetary policy meeting in April.
The report also points out that the monetary policy committee (known locally as the Copom) said at its February meeting that an intensification of rate cuts would be dependent on the evolution of economic data and the development of inflation data.
The report adds: “Since February, the consolidation of the more widespread disinflationary process, encompassing inflation components that are most sensitive to the business cycle and monetary policy reinforces the possibility of a moderate intensification of the pace of monetary easing, in comparison to the pace set in the two latest Copom meetings.”
The report continues: “The Copom understands that the extension of the monetary easing cycle, including the levels of the policy rate throughout 2018, will depend on not only on the projections and expectations of 2019 inflation, but also on the estimates of the structural interest rate of the Brazilian economy. Those estimates are uncertain, and the Committee may reassess them over time.”