BCB to stay on hold?

It is pretty much a foregone conclusion that the Brazilian central bank (BCB) will keep rates on hold at tonight's Copom meeting at 14.25%. The improvement in external financing conditions (lower US yields etc.) alongside generally better sentiment towards EM as a whole means that BCB is under no immediate pressure to raise rates. 

Moreover, as long as the political stalemate in Brasilia continues, BCB will not want to make an already bad situation (budget deficit) worse with further rate hikes. However, inflationary developments give some cause for concern. 

According to local newspapers, the central bank now believes CPI inflation will converge to the 4.5% target only by 2017 rather than 2016. 

"No one realistically expected inflation to reach the target range in 2016, but the question is whether the admission by the central bank is a case of simply being realistic or indicative of a change in policy stance where they favour a less hawkish stance with respect to overall inflationary developments. Buying dips in USD-BRL is recommended", says Commerzbank.