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BRAZIL: BBVA Believe Priced Hikes in September Exaggerated At This Point

BRAZIL
  • Following on from the previous bullet regarding the Bank of America recommendation, BBVA also believe that the priced hikes in the DI curve have become exaggerated at this point.
  • BBVA believe the BCB will likely hold the policy rate at 10.50% at its June meeting, pausing the easing cycle it started in August after 325bp of cuts. The rate freeze could be unanimous in order to shrug off political concerns and send a firmer signal to better anchor inflation expectations. 
  • Domestic concerns over the fiscal position have been increasing gradually over the past couple of months, with more delays and debate on the reforms. The curve has gone as far as to price potential hikes starting September, although BBVA consider this exaggerated at this point. 
  • Some re-anchoring and cooling of pressures for Brazilian rates with a more hawkish BCB could also give the BRL improved backing and potentially generate some momentum.
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