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Santander Say Slowing Easing Pace This Week Cannot Be Ruled Out

  • The exchange rate depreciation, together with higher international oil prices and greater market volatility, introduce additional complexities to the decision on monetary policy that the Central Bank Council must adopt this week.
  • Although Santander estimate that inflation will continue to decrease due to the weakness shown by the economy, the rate of decline will be somewhat slower due to the impact of pressures from the external side. This, added to considerations regarding risk management, could lead the monetary authority to be somewhat more cautious in its next move.
  • Thus, although the option of cutting the MPR by 75bp remains consistent with the evolution of activity and inflation projections, it cannot be ruled out that the Council chooses to reduce only 50 bp (to 9%), taking into account the temporary elements, and then in December, increase the size of the adjustments again.
  • Beyond this, it is possible that, along with the monetary policy decision, the reserve accumulation plan will be suspended. This would help the liquidity of the foreign exchange market and, thereby, eliminate a source of volatility.

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