Brazil Central Bank Expected to Hold Key Rate Amid Rising Risks

(Bloomberg) -- Brazil’s central bank will likely keep its benchmark interest rate unchanged later on Wednesday amid fresh global economic risks and a disappointing domestic recovery.

The monetary policy committee known as Copom is forecast to hold the Selic rate at an all-time low of 6.5 percent, according to 40 of 41 economists surveyed by Bloomberg. They also expect the bank to acknowledge that inflation estimates have gone up recently while the global growth outlook became more uncertain given renewed trade tensions between the U.S. and China.

The door for a possible rate cut remains closed, the economists said, in the absence of concrete signs that President Jair Bolsonaro’s proposed pension reform will be approved by Congress without significant changes. Since the bank’s previous monetary policy meeting in March, the Brazilian real has weakened about 4 percent, partly on concern about the outlook for that flagship bill.

All things considered, the central bank led by Roberto Campos Neto is expected to communicate that risks that could drive inflation higher on lower remain “symmetric.”

Read more: BRAZIL PREVIEW: Neither Reason Nor Room for BCB Rate Cut Now

See comments from economists below:

Isabela Guarino, economist at XP Investimentos

  • Economic activity continues to surprise negatively and odds of global trade war increased, but inflation estimates have been revised up
  • Balance of risks to inflation will remain symmetrical, though with a different composition: bigger risks of weaker economic activity with rising external threats

Mauricio Oreng, Brazil senior strategist at Rabobank

  • The central bank will not open the door for a rate cut now; it will acknowledge weak activity while keeping its view that the economy will improve in the next few quarters
  • Selic rate may be cut by 50 to 100 basis points after pension bill is approved

Camila Abdelmalack, economist at CM Capital Markets

  • There is no room for a rate cut despite weak activity
  • It’s a critical moment for domestic risks, with pension reform possibly failing to be approved; on the other hand, growing odds of trade war may weigh on foreign exchange rates

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