The minutes of the latest Monetary Policy Committee (Copom) meeting reiterated aspects already addressed by the Central Bank last week, but sounded slightly dovish, that is, leaning to rate cuts, in relation to the statement of the decision of cutting the rate by 100 basis points. This way, it maintains alive the possibility of repeating the 100-basis-point cut in the Selic benchmark rate at the July’s meeting, analysts say.
In a sign of that, interest rate futures traded on B3 fell on June 5, the largest drop in 11 days. The difference between the interbank (DI) rates of January 2019 and January 2018 declined by half, to 7 basis points on Tuesday from 16 basis points in the previous day. The 9 point-decline was the steepest in two weeks. In practice, this shows the market sees greater chances of stability in the Selic over the next year. Recently the interest rate curve had embedded a 100 basis-point gain in the policy rate in 2018.
For some analysts, the document released on June 5 seemed a Central Bank (BC) attempt to secure more flexibility in the monetary policy decisions. The reason would be precisely the scenario of uncertainty which, according to the Copom recommended last week, “not predicting the possible pace to be adopted in the future.”
In paragraph 19 of the minutes, the Copom makes clear that the current conditions give room to the continuity of the monetary easing and that this understanding already takes into account the risks to the baseline scenario and the estimates of length of the cycle.
A little later, in paragraph 22, the members say they consider “adequate” a “moderate” reduction of the pace of rate cuts. But they stress that this pace will continue depending on how the economic activity performs, on the balance of risks, on possible reassessments of the estimate for length of the cycle and on inflation projections and expectations.
In general, the market has still been avoiding changing dramatically its expectations for GDP and inflation. According to the median of projections in the BC’s Focus survey, the market reduced the expected GDP growth in 2018 from 2.5% on May 16 — before the eruption of the political crisis — to 2.4% late last week, the latest available data.
In the same period, the forecast for inflation index IPCA in 2017, for example, was lowered to 3.9% from 3.92%. And the projection for 2018 rose slightly (to 4.4% from 4.37%), but still below the midpoint target, of 4.5%.
Source: Valor Econômico