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Sacha Tihanyi   , deputy head of emerging markets strategy at TD Securities, notes that the BCB cut by 50bps yesterday, but 25bps more than consensus expectations and the decision was unanimous.

Key Quotes

“Copom stated that recent data suggested that the halted economic recovery process has possibly resumed, and crucially for the policy stance, that the global outlook has become “benign” (from “less challenging”) due to monetary policy in major economies (the ECB and Fed figure heavily here), despite global slowdown risks remaining.”

“Crucial to Copom’s decision was the stated recognition of progress in the reform process needed for economic adjustment in the Brazilian economy, though policy makers also emphasized the need for continuation of the process.”

“The sudden and swift support in round one of the lower house’s vote for the pension reform was a key factor in our forecast that Copom would feel comfortable cutting by 50bps, as we believed that rapid cuts sooner were both necessary and well-indicated by recent economic data.”

“We believe that so long as the Fed stance continues to signal at least neutral monetary policy shifts from here (TD sees further easing) such that the longer end of the U.S. yield curve remains “well behaved”, the BCB will cut by another 50bps at the September 18th meeting.”