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Bank of America: Message Should Be Less Hawkish

BRAZIL
  • With inflation expectations down (though still de-anchored from the target), continued dynamics of tightening in domestic credit conditions and cooling of inflation (in headline and underlying measures), a mostly non-inflationary pressure coming from activity (and signals of deceleration ahead) and lower risks on the fiscal side, the message should be less hawkish.
  • The positive changes made to the new fiscal framework bill of law, as well as its approval in the Lower House, should be mentioned as factors that lowered uncertainty around the public debt trajectory. Resumption of taxes over fuels and cuts in fuel prices by Petrobras should also be mentioned.
  • On the external backdrop, BofA expect the Copom to highlight the uncertainty around global deceleration and hawkish signals from monetary policy in developed countries, as well as the weaker activity data in China. The Copom should lean more dovish in this meeting, before an expected 50bp cut to the selic rate in the August meeting.
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