According to Morten Lund, Research Analyst at Nordea Markets, the recent depreciation of the
Key Quotes:
“During the truckers’
“We expect more FX swap auctions and verbal interventions from both the central bank and finance minister Eduardo Guardia will be used as was also the case on the back of fear of rising contagion risk from Argentina. Should the situation escalate, we would also expect the BCB to use direct FX spot sales and increase credit lines, leaving an emergency hike a measure of
“We do not expect the BCB to hike this year due to the current inflation development. Thus, the BCB has never hiked with an inflation gap in negative territory and while we acknowledge that the degree of FX pass-through to inflation is relatively high, we do not expect it to be enough to justify a rate hike in 2018 as earlier negative inflation gaps similar to the current have never been followed by a rate hike in the following 12 months.”
“The recent truckers’ strike and turmoil in the financial markets combined with falling confidence indicators and political uncertainty all points towards lower economic activity and lower growth rates than expected. Hence,
“Our view is at least more dovish than consensus as we do not expect the BCB to begin its rate hiking cycle before 2019 with hikes
“Longer out on the horizon, we still see limited upside in the BRL due to the above-mentioned vulnerability in public finances and political instability as well as the dependence upon commodity prices. However, increasing inflation pressure should impose the BCB to hike rates in 2019. This will
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