Brazil: Heading for the final step in the easing cycle - Rabobank

The BCB’s Q4 inflation report brought little changes in key inflation simulations: the numbers still point to an expected inflation convergence to the center target path for the medium run, assuming Selic rate at 7% now and 8% later, and well-behaved FX rate, explains Mauricio Oreng, Senior Brazil Strategist at Rabobank.

Key Quotes

“Short term, the BCB’s flight plan remains the same: a 25-bp cut to 6.75% in February.”

“We continue to take the Copom’s guidance and stick to our view that the authority will probably end the easing cycle with a final move of 25bps in the next policy meeting.”

“While we cannot rule out a cut in March, our view finds support in the BCB wording about ‘caution’ and the convergence suggested by the simulations.”