Brazil: Despite the change in savings
account, we maintain the Selic forecast at 8.25% p.a.
government announced a change in the rules of the savings accounts, moving from
a nearly fixed yield (defined by law) to a fully floating yield, linked to the
target overnight rate (Selic). According
to the new rules, the yield of the savings accounts will remain at the current
TR (reference rate) + 6.17% p.a. whenever the Selic is above 8.5% p.a., but will
be reduced to TR + 70% of the Selic whenever the Selic is at or below 8.5% p.a..
These rules are only valid for new deposits, i.e., the outstanding deposits (as
of yesterday) will continue to receive 6.17% p.a. + TR.
· The new
rules ensure that the yield of the savings accounts, a virtually risk-free
investment modality, remains consistently below that of fixed income funds and
time deposits even under lower levels of the Selic, thus avoiding a massive
migration of funds from these modalities into the savings accounts (for further
details, please refer to our March 28 note, A Sesquicentennial Obstacle).
At the same time, the maintenance of rules for outstanding deposits mitigates
the risk of both a questioning of the measure at the courts and a potential
mismatch between deposits and existing mortgage contracts (which are funded by
resources from the savings accounts).
· In theory,
this change clears the way for a Selic below 8% p.a., should the Central Bank
opt for a more aggressive monetary easing. However, for now we maintain our
forecast of 8.25% p.a., to be achieved with a 50 bps cut by end-May and 25bps in
July, for three reasons: 1) the explicit mention, in the Copom minutes
released last week, to “parsimony” face to the “lagged effects of the monetary
easing” suggests that the Central Bank sees the easing cycle close to its end;
2) during the current easing cycle, the Central Bank has never mentioned the
savings account as a constraint for its planned moves; 3) our forecasts indicate
that economic activity will strongly rebound in the second semester.
· Nevertheless, we highlight that there are downside risks to our
view: as we mentioned in the last report (More Than Words, released on April
28), the Central Bank is now more data-dependent than ever and may react with a
more aggressive monetary easing if the next round of economic releases continue
to show a combination of low inflation and disappointing economic activity,
particularly industrial production.