The Central Bank has acknowledged further signs of economic weakness, but has kept the keynote that it needs to analyze the behavior of the activity in sufficient time before a possible change in the interest rate by keeping the Selic unchanged on Wednesday. historical low of 6.5 percent.
In its decision, the Central Bank pointed out that “although the risk associated with the idleness of the factors of production has risen in the margin, the balance of risks for inflation is symmetrical.“
Under the direction of Roberto Campos Neto, the Central Bank had already indicated that it needed time to assess the scenario before any change in the conduct of monetary policy after pointing out that its balance of risks to inflation had been balanced – higher inflation risk.
On Wednesday, the Central Bank gave more details of the process, noting in a previously unpublished passage that it needs to see a decrease in the uncertainty to which the Brazilian economy is subjected.
“The Committee deems it important to observe the behavior of the Brazilian economy over time, with a lower degree of uncertainty and free from the remaining effects of the various shocks to which it was submitted last year, and in particular, by reducing the degree of uncertainty to which the Brazilian economy remains exposed,” he said.
Specifically on the pace of the economy, the Central Bank has evaluated, in another new section, that “recent indicators of economic activity suggest that the cooling observed at the end of 2018 continued at the beginning of 2019.“
“The Copom scenario contemplates resumption of the process of gradual recovery of economic activity,” he added.
The message has as a backdrop a slow revival of the economy, with agents successively revising down their expectations for the expansion of the Gross Domestic Product (GDP) this year. In the most recent Focus survey, this estimate was only 1.49 percent, after starting the year at around 2.5 percent.
For the Rosenberg Associates team, maintaining the Selic at 6.5 percent remains the most likely scenario from now on.
“However, if the frustration with the rhythm of activity remains, after the shocks to which the economy has been subjected, and no signs of recovery are noticed, we may see a change in the balance for asymmetric and, later, a cut of interest” , wrote in a note to customers.
On the domestic front, the Social Security reform — considered crucial to bring the public accounts back into order — is also in its early stages of development and, given the absence of a political base constituted in Congress, there are uncertainties about ensure, with the proposal, the desired economy of at least 1 trillion Reais in a decade.
“I believe that any prospect of change in the statement will only occur within a context in which the reform passes,” said Infinity chief economist Jason Vieira, who also forecasts the Selic at 6.5 percent for the remainder of the year.
Meanwhile, economist Rafael Cardoso of Daycoval Asset Management estimated that in general the Central Bank was more “dovish” (inclined to a possible loosening of interest rates).
“I still see interest cuts this year, since I believe that the reform should go, and Selic at 5.5 percent in December,” he said.
In the statement, the Central Bank also stated that the various underlying inflation measures are at appropriate levels, as opposed to “appropriate or comfortable” previously.
The Central Bank had already said earlier that 12-month inflation would peak around April or May, then retreat to below the center of this year‘s target.
Packed by a rise in transportation prices, the Broad Consumer Price Index -15 (IPCA-15) accumulated an increase of 4.71 percent in the 12 months up to April. For 2019, the official target is an IPCA of 4.25 percent, with a margin of 1.5 points for more or less.
In its accounts released on Wednesday, the Central Bank raised the inflation projection for 2019 by the market scenario to 4.1 percent