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Mauricio Oreng, Senior Brazil Strategist at Rabobank, notes that the Copom kept the Selic (policy) rate at 6.50% p.a. yesterday, as widely expected by analysts.

Key Quotes

“In the statement, the BCB highlights that the decision reflects the baseline scenario and balance of risks, being consistent with inflation convergence to target, especially for 2019.”

“As per the forward guidance, the authority indicates that “the evolution of baseline scenario and balance of risks prescribes keeping the Selic rate at current level.” The BCB has reaffirmed its focus on inflation expectations, balance of risks, and economic activity.”

“The inflation simulations seem to suggest that the BCB sees USD/BRL at 3.70 consistent with inflation slightly below the mid-target for key policy horizons (e.g. 2019). With FX around 3.60, rate hikes (to 8% by end-2019) could start driving inflation further below the mid-target.”

“For now, we keep our long-held hypothesis of constructive political outcomes later on this year, and continue to embrace a scenario of low (and stable) interest rate for long.”