BCB to remain dovish - TDS

The BCB cut rates -25bps as the wide majority of consensus expected (against TDS call for a hold) and also surprised by projecting a further rate cut at the next meeting, points out the research team at TDS.

Key Quotes

“It is difficult to see how COPOM’s baseline scenario for inflation has changed so significantly in one month to justify this outcome, considering the only small (and still within target range) downgrade of the 2018 inflation outlook, and a generally unchanged outlook for 2019.”

“We feel that this indicates a degree of policy maker complacency regarding the potential negative impact on Brazil (due to the country's weak structural fundamentals) of a turn in the external macro-financial environment. Nevertheless, while a benign environment persist, the BCB will remain dovish.”