Nomura Foresees Bold 100bp Selic Cut

Nomura is predicting a bold 100bp rate cut in Brazil at the next Copom policy meeting in October, and it is revising its year-end forecast for the Selic to 10.50% from 11%. Given that the central bank’s exchange rate target has been met thanks to a weaker BRL and that inflation is likely to fall in coming months, growth has become a priority for monetary authorities in Brazil, the shop says. Policymakers have been expressing concerns about a prompt resolution to problems in Europe and are looking to pre-empt any possible contagion. “Recent developments confirm our view that growth is now the top concern of the authorities,” Nomura analysts add. The shop is forecasting cuts of 100bp and 50bp in October and December to bring the Selic down to 10.5% by year-end, and further incremental 50bp rate reductions next year to arrive at 9.5% in March 2012. Analysts will be looking for further clues about interest rate policy on Thursday, when the central bank releases a QIR report on its revised forecasts for GDP growth and inflation this year and next. This will be helpful in determining “what factors would encourage Copom to accelerate or not the current pace of rate hikes of 50bp per meeting,” says Goldman Sachs analysts.