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Rabobank analysts note that yesterday in Brazil, the Copom reduced the Selic (policy) rate by 50bp to a new historical low of 6.00% p.a., as projected by the local yield curve projected.

Key Quotes

“In the statement, the Copom links the decision to the evolution of the scenario, especially the balance of risks – probably in the wake of clearer signals of an effective pension reform. The committee signals room for further stimulus ahead, even though the BCB seeks to retain degrees of freedom by claiming that its assessment “does not restrict its next decision.”

“The Copom reiterates that further progress in the process of macro adjustments and reforms “is essential for the reduction of its structural interest rate and for sustainable economic recovery.”

“The BCB’s newly presented (IPCA) inflation simulations seem to indicate room for a total adjustment of 100-125bp in this cycle. This apparently means a slightly larger space than the 75-100bp adjustment implicitly suggested in previous communications.”

“We continue to look for two more Selic rate cuts of 50bp for September and October, taking it to 5.00% for end-2019. We expect no change in monetary policy 2020.”