FXStreet (Córdoba) – According to Sacha Tihanyi, Senior EM Strategist at TD Securities, the probabilities of another rate hike in Brazil has increased significantly.
“The market should see heightened sensitivity to inflation projection changes in the Q4 report due to recent market events and the hawkish shift in monetary policy bias at the November meeting.”
“We see a significantly increased probability that the BCB hikes by 50bps, and some degree of risk for more, at the January meeting, given the development in inflation expectations and a more challenged fiscal consolidation trajectory.”
“Tomorrow the Banco Central Do Brasil releases its Q4 inflation report, approximately one month before the next COPOM meeting. A number of developments have significantly raised the probability that the BCB hikes by 50bps in January. These developments include: the hawkish shift in statement tone along with the two COPOM member dissents to hike at the November meeting, the cut in the 2016 primary fiscal surplus target to 0.5% of GDP from 0.7%, the second credit rating downgrade to junk status by a major rating agency, as well as the exit of Joaquim Levy as Finance Minister and his replacement by Nelson Barbosa (Barbosa is seen as more Keynesian and less likely to favour as swift a pace of fiscal reform).”
“BRL sits near assumed levels in the Q3 baseline projection (USDBRL at 3.90), though there is likely to be some additional degree of upside risk thanks to developments of the past month. However, this may be more evident in the “market scenario” rather than in the BCB’s baseline projections. Despite this, we still think that policy makers will be more concerned than perhaps what is indicated in the baseline projection as it relates to BRL.”