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13 Mar 2015
Additional 50 bp rate hike seen in Brazil – Scotiabank
FXStreet (Edinburgh) - Chief FX Strategist at Scotiabank Eduardo Suarez expects the Brazilian central bank to hike rates by 50 bp in the next meeting.
Key Quotes
“The BCB has seen a deterioration in the balance of inflation risks for the current year, driven by potential FX inflation pass‐through, as well as upward pressures on administered prices (this is likely centered on power costs)”.
“This latest assessment may present some upward risk to our “Selic rate base case”, but we do not see a clear enough case to make a revision yet”.
“Recent communication suggests concerns over FX are still relatively modest on the stability front, but FX inflation pass‐through has been flagged as an issue to watch given the recent accelerated rise in USD/BRL, which is now trading north of 3.10, and has lost 29% vs. the greenback since the start of July 2014, the third worst performance of any major FX globally (only trailing the RUB at ‐44.3%, and COP at ‐29.2%)”.
“Our base case remains that the BCB will hike an additional 50bps in the next meeting, followed by 2 X 25bps hikes”.
Key Quotes
“The BCB has seen a deterioration in the balance of inflation risks for the current year, driven by potential FX inflation pass‐through, as well as upward pressures on administered prices (this is likely centered on power costs)”.
“This latest assessment may present some upward risk to our “Selic rate base case”, but we do not see a clear enough case to make a revision yet”.
“Recent communication suggests concerns over FX are still relatively modest on the stability front, but FX inflation pass‐through has been flagged as an issue to watch given the recent accelerated rise in USD/BRL, which is now trading north of 3.10, and has lost 29% vs. the greenback since the start of July 2014, the third worst performance of any major FX globally (only trailing the RUB at ‐44.3%, and COP at ‐29.2%)”.
“Our base case remains that the BCB will hike an additional 50bps in the next meeting, followed by 2 X 25bps hikes”.