Brazil: Consensus Still Sees 50-Basis Point Rate Cut This Week, Economic Outlook Stable; Lula Election Lead Cut in Recent Surveys, Other Aspects of Politics Mixed

Summary

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This week's meeting of the monetary policy committee (Copom) on 18-19 July comes amid a fresh round of concerns in the international arena, focused on escalating conflict in the Middle East pushing up oil prices and also the likely contents of the US FOMC minutes. While this backdrop will undoubtedly be taken on board, it remains probable that Copom will opt for a further 50-basis point reduction in the benchmark Selic rate from its current 15.25%. The prospect of continuing stability and low inflation in the near term also reinforce the view that there could be another rate cut at the August meeting. On the election front, the re-election of President Luiz Inacio Lula da Silva in the first round on 1 October is still the most likely outcome. But recent surveys suggest that his main rival, Geraldo Alckmin, may be beginning to attract more support, which if it continues could raise the prospect of taking Lula to a second round. Meanwhile, little significant action is expected in the legislature between now and November as large numbers stand for re-election.

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Brazil: Consensus Still Sees 50-Basis Point Rate Cut This Week, Economic Outlook Stable; Lula Election Lead Cut in Recent Surveys, Other Aspects of Politics Mixed

Copom seen cutting rates by 50 basis points this week, 25 basis points in August

The monetary policy committee (Copom) will hold its two-day meeting on 18-19 July, this being the penultimate meeting prior to the presidential, legislative and gubernatorial elections of 1 October. All the signs are that there will be another cut of 50 basis point...

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