Thursday, 19 March 2009

Brazilian Central Bank Might Continue Aggressive Monetary Policy Front-Loading, Policy Meeting Minutes Suggest

The Banco Central do Brasil released its monetary policy minutes today. According to the document, The downturn has substantially gained momentum since the fourth quarter, making it more likely that inflation slows towards or below the target for this year. The impact of the crisis is making the scenario more adverse, and weak economic conditions will ''remain in place for a longer period of time.´´ This is a worrisome statement, because it means that, despite a possible depreciation of the real and other unfavourable shocks, the likelihood of deflation at the wholesale level is growing. Brazil is already in recession -- GDP will shrink easily by a couple of points in the first quarter. President Lula is considering easing the primary surplus target to free up more money for investment as tax collections will be below target by about $20 billion. He is just buying time, not avoiding the inevitable.

Now the question is, Will the next reduction be close to 100 or 150 basis points? Probably 100 points. That is what most analysts expect.

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