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segunda-feira, junho 11, 2012

Brazil Economics & Strategy : That sinking feeling; downgrading our GDP growth forecasts

 Brazil Economics & Strategy : That sinking feeling; downgrading our GDP  
 growth forecasts    
                                                     
                                                                                                                                                       
  * In light of weaker data, we lower our 2012 and 2013 GDP forecasts to  
  2.5% and 3.8%, respectively                                             
                                                                          
  * We believe that the BCB will cut the Selic rate to 7.5% (-50 bps in   
  July and -25 bps in August and October) and then hold through the end of
  2013                                                                    
                                                                          
  * We see value in receiving rates under our lowered SELIC forecast; on  
  FX, we believe the BCB will continue to manage a range for USD-BRL of   
  1.95-2.10                                                               
                                                                          
  On the back of evidence of weak investment and signs that the services  
  sector may be faltering, we downgrade our growth forecast for 2012      
  further, to 2.5% (that is, below last year's growth rate of 2.7%). For  
  2013, we lower our forecast to 3.8% (from 4%). We also lower our IPCA   
  inflation forecasts for 2012 (from 5.2% to 5%) and 2013 (from 5.8% to   
  5.5%).                                                                  
                                                                          
  Regarding monetary policy, concerns with misfiring growth will, in our  
  view, lead the Central Bank to cut rates more aggressively this year. We
  now forecast that the Central Bank will continue to ease monetary policy
  by applying a 50 bps cut at the July meeting, followed by two subsequent
  25bps cuts in the August and October Copom meetings, bringing the Selic 
  policy rate to a year-end level of 7.5%. For 2013, we still expect the  
  Central Bank to keep rates unchanged, at 7.5%.                          
                                                                          
  Sharply increased volatility has become a mainstay of local rates in    
  Brazil, but we see value in receiving the front end of the curve. Under 
  our new SELIC forecast, fair value of the Jan'14 DI contract is about   
  70bp below current trading levels. We recommend staying away from the   
  long end of the curve. On FX policy, for now, the BCB has been selling  
  USD via swaps supporting a stable BRL as the costs of a weak BRL policy 
  become more apparent. We think this strategy will prevail with the BRL  
  trading in a wide range between 1.95-2.10/USD. However, we recognize that
  economic conditions are shifting quickly making it more difficult to    
  predict policy changes.

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