Publications

The Board of the Central Bank decided to maintain the monetary policy rate at 0,25% in July. The Bank will maintain an expansive stance but will pay special attention to inflation expectations.

Today’s policy meeting saw the ECB leave its rates unchanged while maintaining the current pace of PEPP purchases, but delivered a moderately positive assessment of the evolving economic situation. This despite an acknowledgement of the underlying uncertainties posed by the pandemic

As expected, the CBRT maintained its policy rate unchanged. Important uncertainties on politics and geopolitics remain to be solved, so today’s decision is a prudent one. We maintain our view that the CBRT will start the gradual easing cycle towards the end of the year, but the expected disinflation could bring it forward.

The 2Q15 Inflation Report revealed that the COPOM expects inflation to close 2015 at 9.0%, decline to 4.8% at the end of 2016 and converge to the 4.5% target only in 2Q17. As its focus is on taking inflation to the target by the end of 2016, its forecasts suggest it will continue tightening monetary policy ahead. We now expect another 50bp hike of the Selic rate in July.

We find that futures rates increase (decrease) after both an increase in the reference interest rate and a hawkish (dovish) communication by the BCB. Moreover, BCB words create more “noise”, since they increase volatility of futures rates. Our analysis reveals that BCB communication has increased its effectiveness after the 2008 crisis, while deeds became less relevant.

The Monetary Policy Committee (COPOM) decided to adjust up the SELIC rate by 50bp, as in its three previous meetings. By maintaining the adjustment pace unchanged in spite of the signs of sharp deceleration in economic activity, the monetary authority tries to convince markets that it will be able to make inflation to converge to 4.5% at the end of 2016.