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sexta-feira, junho 08, 2012

BRAZIL: Copom Minutes: No big news

· Minutes from the May 29-30 Copom meeting

· First thoughts: Very little changing in wording. Using current data (market expectations for inflation and current exchange rate and Selic), inflation forecasted by the Central Bank remains around the target for this year (a reduction in the market scenario, that takes into account the market forecasts for those variables) but higher than 4.5% in 2013. However, the fact that they added that the economic recovery has been very gradual following the stronger than anticipated slowdown last year. But, more importantly, the infamous paragraph 35 (now 34), which had been key for signaling the next decision by the monetary authority, remained unchanged, keeping the “any movement of further monetary loosening shall be conducted with parsimony” bit. In the April meeting, the addition of the word “parsimony” led the market to price in lower cuts in the next meetings (two 50 bps and on 25 bps cuts, whilst we changed our view to one 50 bps and one 25 bps cut) and foresee the end of the loosening cycle soon. This minute seems to have done little, if nothing, to change those expectations.

· Bottom line: This minutes contributed very little to change everyone’s expectations concerning the next decisions by Copom. We maintain our expectation that the next meeting may bring a 25 bps cut, bringing the Selic rate to 8.25% p.a., the last one in the cycle. However, we admit that the minutes left the door open for another 50 bps cut, as expected by the market that is still thinking about the basic rate at 7.75% p.a. by Jan. 2013.

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