巴黎银行-新兴市场-投资策略-巴西：保守的宽松周期 –0717-7页.pdf
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17/
07/19
|
FLASH
G
ustavo Arruda
,
Senior Economist | BNP Paribas do Brasil SA
Luc
a Maia
,
LATAM FX/IR Strategist |
B
NP Paribas do Brasil SA
Br
azil – Conservative easing cycle
KEY MESSAGES
We now expect Brazil’s central bank to start its easing cycle
in July, instead of September.
The BCB is likely to cut about 100bp in total, we think, in
25bp increments.
On balance of risks, we believe the BCB would prefer to stay
on the conservative side by cutting less and at a smaller
pace, rather than run the risk of having to hike rates too soon.
The size of the cycle and the pace of cuts might change if
the economy does not react to the stimulus.
The central bank has the green light from the Congress
to start the easing cycle from July. In its latest
communication, the central bank had indicated that any
eventual stimulus would come only in the event of a concrete
step forward in fiscal consolidation. Following the recent
positive step in the pension reform, which are expected to
save about BRL850bn in 10 years, BCB should be more
comfortable to act now. Both inflation and growth indicate the
need for policy action.
We now believe that the upcoming monetary policy
easing cycle is not a matter of ‘if’ or ‘when’ but of ‘how
much’ and ‘how fast’. We expect the central bank to be
cautious. Between the two known risks of starting an easing
cycle, we expect the BCB to be more conservative and run
the risk of cutting less than needed, and being obliged to cut
for longer and at the end see inflation failing to converge to
the target, rather than run the risk of having to hike rates
sooner because of extra aggressiveness.
Reasons to be cautious
• Pending social security reform: Although recent
developments were positive, this landmark overhaul still
needs to pass a second vote in the Lower House in
August and then to win approval by the Constitution and
Justice Commission in the Senate before being
approved by 49 of 81 senators in two rounds of votes.
All going well, we expect the process to end in late
September or October.
• Fiscal stimulus: The government is reportedly
considering a repeat of the programme that allowed
households to access compulsory savings that are now
blocked by law (FGTS). When former president Temer
implemented the measure, it had a sizeable impact on
consumption. Although the expectation is for a smaller
programme, the size, agenda, or the number of
households that are likely to benefit have not yet been
determined. In other words, the potential boost to
demand is of uncertain size and impact.
• Possible global bounce back: Brazil’s disappointing
growth was accompanied by a deceleration in other
economies. Central banks in advanced and emerging
economies are now in an easing mode. This quasi-
synchronised monetary policy may start to accelerate or
at least stabilise global economic growth. Although
monetary policy easing in Brazil is cyclically justified, it
should be viewed in the context of the global economy
and monetary policy stance.
All told, we believe the BCB will start a conservative
easing cycle. Although markets are currently pricing in a
high probability of a 50bp cut at the July meeting, we believe
the BCB will opt for a more steady process, cutting rates by a
marginal 25bp per meeting from the start of the cycle,
probably finishing at 5.5% from current 6.5%.
The central bank will likely keep the doors open to adjust the
pace of cuts if required by growth and inflation, which should
work as a barometer that helps the BCB to gauge the size
and timing of the required stimulus. We think a 25bp cut in
July seems like a good starting point.
A
fter earlier taking profits on the FRA Jan-22s23s receiver
and recently on the Jul-20sJan-22s flattener, our strategy
team believes that the DI curve remains too steep. This is
why they decided to re-enter into Jan-21sJan-25s flatteners.
The aim was to get the most out of (a) the term premium
model, which still points to premium for 5y tenors; (b) the
positive impact of the pension reform via structural lower
nominal rates in the long end of the curve; and (c) the
systemic global compression of rates, to which local IRS are
not immune. Additionally, they decided to pay rates in DI
April-20 as they see the short end of the curve pricing in a
more aggressive monetary policy than what their models
suggest (see
Bra
zil – Take profits on short-end receivers;
goi
ng into payers
).
E
M ECONOMICS
FLASH | LATIN AMERICA
17 Ju
ly
2019
Please refer to important information at the
end of this report.
MARKET VIEW
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