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Goldman Sachs Expect Conservative 25BP Cut In August

BRAZIL
  • After Monday’s economic activity data release, Goldman Sachs expect activity to benefit from fiscal and quasi-fiscal stimulus (robust federal fiscal transfers to low-income households with a high propensity to consume), expansion of the real wage bill, and declining inflation (food prices in particular).
    • However, the fading impulse from economic reopening, tight domestic monetary and financial conditions, high levels of household indebtedness, low levels of economic slack (unemployment rate at the NAIRU), moderating job creation, soft consumer and business confidence, and the incipient turnaround in the credit cycle are expected to generate headwinds to activity beyond 1Q2023.
  • Also, following the BCB’s Focus Survey, Goldman Sachs said the fact that inflation expectations for 2024, and in particular for 2025/26, seem to have stabilized above the 3.0% target suggest that the Copom may elect to start the easing cycle in August with a conservative 25bp rate cut rather than bolder 50bp.
    • In their assessment, initiating the easing cycle with a 50bp cut would likely require a combination of further improvement of inflation expectations, favorable inflation surprises, and a USD/BRL at or below 4.80.
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