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Itaú Shifting Year-End Forecast To 12.25%, Expect August Cut

BRAZIL
  • Itaú noted the Copom meeting minutes brought a significant shift in tone. If the statement indicated that the committee´s base case was to start easing at the September meeting, the text released yesterday pointed clearly towards earlier easing, namely in the August policy meeting.
  • The minutes actually did bring some hawkish elements, such as the increase in the estimated neutral rate to 4.5% pa, from 4.0% pa, and a sentence cautioning against premature easing.
  • However, the text indicated that a majority of the committee already sees conditions, with lower inflation prints and smaller deviation of expectations from the target, that would give it confidence to parsimoniously begin an easing cycle in the next meeting.
  • Despite hawkish caveats, given that the majority rules, and the very explicit message in said paragraph, Itaú are shifting their call for the rest of the year from three movements starting in September (taking the base rate to 12.5% pa by year-end), to four moves, starting with a 25-bp rate cut in August, taking the Selic to 12.25% pa at the end of the year (specifically, two 25-bp cuts followed by two 50-bp moves).
  • Itaú will learn more about the short- and medium-term prospects for monetary policy with the release of the Quarterly Inflation Report and the National Monetary Council’s decision on the inflation target on Thursday.
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