6/05/2014 @ 10:07下午 |
The recent monetary policy committee meeting minutes from Brazil’s Central Bank suggest that interest rates will stay where they are for the rest of the year. But if the economy continues to soften, the market will have to rethink the going consensus that interest rates are going up in early 2015.
Brazil’s benchmark Selic rate is 11%. With recent first quarter and industrial production data coming in weaker than expected, raising rates despite inflation over 6% risks a recession. This is especially true if growth forecasts drop towards 1%. The dual-mandate central bank — one hand independent, the other hand tied to presidential politics — will only act if it sees a serious deviation in its scenario for inflation, says Tony Volopon, head of emerging markets Americas for Nomura Securities in New York. With the election just four months away, the Central Bank seems willing to tolerate inflation above target rather than tick off the business class with a rate hike. Moreover, since the real decisions about what to do with regulated prices such as gas and electricity will not be made until after the October presidential election, the bank is basically saying in these latest minutes, “see you all in 2015,” Volpon says.
A weak economy and the lagged effects of policy will tend to drive unregulated prices lower. Regulated prices will continue to rise and put pressure on inflation, and the Central Bank will be vigilant to contain, not stop, the secondary effects of this on inflation overall. A similar argument can be made for changes of domestic and external prices due to currency depreciation.
“The decision to pause only makes sense if the bank believes it has already done enough, given its expectations for changes in these two sets of relative prices and its estimate of lagged effects of policy given a weakening economy,” Volpon says.
The Brazilian currency’s depreciation has been a source of concern for inflation. The Central Bank remains concerned with the outlook of the dollar-Brazilian real exchange rate and is likely to renew the intervention program that ends in June, with the Central Bank buying up dollars in the spot market on the BM&F exchange.
The dollar has gained 2.5% on the real, but is weaker than it was in February when the exchange rate was one to 2.44.
Salomon says in a note to clients on Thursday that in order to stabilize inflation and bring it back towards the 5.5% handle in 2015, the Central Bank’s next move is likely to be a hike in rates in the first months of 2015, which is already priced in the market.
“But if (economic) activity continues to surprise on the downside, the risks are that markets could swiftly change views and start to consider a cut and not a hike as the next move,” Salomon says.