Fxstreet (Delhi) – Analysts at Rabobank expect that the COPOM meeting on Wednesday, 2nd September is likely to result in no change to the current SELIC policy rate of 14.25%. The most recent statement suggested that the BCB expects the SELIC to remain on hold mode for an extended period of time. Even though Rabobank analysts expected the Bank to start cutting rates in Q2 of next year, recent developments in FX and the deterioration of the global growth picture could delay such a move.
Key Quotes
“On August 28th, GDP growth data from Q2 were released and yet again, activity data disappointed. Not only did GDP contract 1.9% q/q in Q2 but data showed a substantial downward revision in Q1 growth from -0.2% q/q to -0.7% q/q.”
“Anaemic activity should provide some relief from price pressures but we are cognizant that FX volatility and further currency depreciation could cloudy that picture somewhat.”
“We have our doubts as to whether the BCB will be able to achieve its 4.5% y/y inflation target by the end of 2016. Our forecasts show inflation ending 2015 at around 9.2% y/y. If we are correct, then a 4.7 ppt slowdown in inflation is needed in 2016 to achieve the BCB’s target but our expectation is that less than a 4ppt reduction is more likely and so we maintain our 5.3% inflation forecast for the end of 2016.”
“The major challenge for the BCB will be to remain on the sidelines and leave the policy rate at 14.25%. In order to anchor inflation expectations lower, the policy rate needs to stay high but political pressure to cut will become much higher given that the effects of economic crisis have only just begun.”
“Market sentiment has deteriorated both internal and externally. In short, the central bank remains stuck between a rock and a hard place but that rock is looking rockier and the hard place even harder!”
(Market News Provided by FXstreet)