Monetary Policy Committee (Copom) Bank of Brazil will announce today (09) a new decision on monetary policy. The common expectation in the market is that the base rate (Selic) will be maintained at 2% / year, the lowest level in history.
This is the view of BTG Pactual (BPAC11), Credit Suisse, Golman Sachs, UBS, Santander (SANB11) and Itaú Unibanco (ITUB4). So far, no change in the scenario justifies the increase interest rate, although the Central Bank should point out that they remain wary of the country’s fiscal recession.
According to experts from financial institutions advised by SUNO News, the conditions for maintaining the forward guide remain.
O instructions ahead it is a medium-term indicator given by the Central Bank on how the Central Bank intends to operate monetary policy. Also known as a “futures prescription,” it is an instrument used by other central banks, such as the Fed, in the United States.
In a report, Itaú Unibanco stated that monetary policy stance should not be changed, as at least for now, there has been no clear change in tax regime.
What is expected, however, is a Central Bank reservation of a possible change in Selic’s orbit in the future, should fiscal risks increase.
“We expect the forward guidance to remain in its current form, but with a clearer sign that conditions will be continually reassessed,” Itaú Chief Economist Mario Mesquita said.
Inflation still does not justify the high Selic
Despite rising inflation in Brazil, economists estimate that there is still no sign that Copom will raise interest rates to take control. inflation movement. This is because future inflation forecasts are still below or close to the target.
According to Itaú, inflationary pressure seems to be only “temporary” nature, at least up to the present time.
In addition, the high level of idle in the economy, still affected by the pandemic, reinforces the notion that interest rates will remain at historic lows. According to a BTG Pactual report, some sectors of the economy have seen a strong recovery, but the outlook remains uncertain.
The bank also pointed out that the run out of emergency aid will slow economic activity. “With this, we believe that Copom will again decide to keep the Selic rate at 2% / year. We also believe that the committee will maintain the forward guidance message, which is a signal of low interest rates in the long run, ”said BTG.
However, the banks insist that maintaining Selic at 2%, like the guidance ahead, is conditional to maintain the sustainability of public account.
Copom should eliminate opportunities for further cuts
Although inflationary pressures should not have prompted the Selic to rise, the current scenario could prompt Copom to adopt a more conservative language. According to Credit Suisse, the Central Bank should be more cautious in its view of inflation, eliminates the possibility of further cuts with Selic ratio.
“In particular, we hope the phrase ‘space for monetary policy stimulus, if any, is small’ will be eliminated,” said Credit Suisse.
In the bank’s scenario, inflation expectation will continue to increase. With that, it is possible forward change instructions of the Central Bank in early 2021.
Even so, Credit maintains its forecast that Selic will remain stable at 2% until June 2021.
On the other hand, Goldman Sachs predicts that the Selic rate will reach 2.75% by the end of 2021. In a report, the bank said the Selic rate should remain at 2% throughout the first half of 2021.
In Goldman’s view, it is necessary to begin a “gradual normalization cycle” in the second half of 2021 to protect its inflation target in 2021 and 2022.
Still putting expectations on the future for Selic, Santander Brasil forecast Selic at 2% / year until the end of 2021. According to the bank, the high interest rate cycle will only start in January 2022.
The spotlight news raises the inflation forecast again
This week, the Spotlight Bulletin again outlines inflation expectations for 2020, as measured by the Consumer Price Index (IPCA). This is the 17th consecutive week of forecast increase. According to the Central Bank (BC) survey published on Monday (7), market experts predict inflation this year at 4.21%.
Four weeks ago, analysts’ predictions heard central bank is a price increase of 3.20%, while last week it was estimated at 3.54%.
According to the Minutes of the Final Meeting of the Monetary Policy Committee (Copom), this year’s inflation in the hybrid scenario is 2.1%. For 2021, the target is 3.75%, with a range from 5.25% to 2.25%. BC estimates a 3.34% price increase by 2021.