Copom minutes to show BCB’s assessment of medium term inflation risk

The BCB's decision to leave rate unchanged was widely expected, including by us. The bank added a sentence to its short statement ("The Copom emphasizes that monetary policy will remain vigilant to achieve this goal") that may arguably be termed as an attempt to remain hawkish about a decision that is otherwise dovish in nature given the state of the inflation outlook and financial conditions. 

As argued in a recent piece, the BRL (and therefore fiscal numbers) holds the key to any near-term change in the BCB's position of keeping the rate unchanged. In the case of neither severe pressure on BRL nor further risk to the medium-term inflation outlook, the growth situation will guide the BCB decision during this downturn. 

"The BCB is expected to keep the rate unchanged through H1 16 followed by a 50bp rate cut in H2 16. The minutes of the meeting should provide further clarity about the BCB's assessment of the inflation risk at this stage", says Societe Generale.