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Goldman Sachs Assess 40% Probability To Bolder 50BP Cut

BRAZIL
  • Given the recent macro-financial developments and the signals provided in the minutes from the Jun 21 meeting, Goldman Sachs expect the Copom to cut the Selic policy rate by 25bp to 13.50%. GS, however, assess a 40% probability of a bolder -50bp move (note: this probability could increase were the BRL/USD to trade consistently below 4.7 ahead the meeting and/or in case of further visible improvement in inflation expectations on Monday’s central bank Focus survey).
  • GS do not rule a split decision whether the Copom cuts by 25bp or 50bp. In case of a 50bp rate cut, we expect the Copom to provide guidance (signal) that the pace will be maintained at the next meeting, while with a more parsimonious 25bp cut the door would be open to accelerate the pace already at the following meeting.
  • Playing the long game would be consistent with starting the easing cycle gently, in order to go far. That is, it is important to limit the risk of “overspinning the wheels at the start” in order to cement the recent disinflation gains and further anchor inflation expectations, as the trade-off could be opening a wider lane for faster and deeper cuts in this cycle.
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