BRAZIL: Domestic Demand Slowdown Supports Softening of Monetary Policy Stance
Dec-04 13:16
- USDBRL briefly dipped below the 5.30 handle in early trade, following the softer Brazil Q3 GDP data, before paring most of the move as price action remains muted so far in Thursday’s session. The further slowdown in economic growth is likely to give the BCB more confidence that its very restrictive monetary policy stance is having the desired effect, potentially opening the door to a rate cut as soon as the January Copom meeting.
- The smaller-than-expected 0.1% q/q increase in Q3 GDP was due to a slowdown in the service sector, where activity rose by just 0.1% q/q (vs. +0.3% q/q in Q2). Elsewhere, agriculture rebounded slightly from a weak Q2 (+0.4% q/q vs. -1.4% q/q in Q2), while industrial output picked up (+0.8% q/q vs. +0.6% in Q2), aided by a recovery in mining. Manufacturing activity remained weak.
- By expenditure, consumer spending continued to slow (+0.1% q/q; +0.4% y/y), as did investment spending growth, despite a slight rebound over the quarter. As expected, net exports made a positive contribution to growth. Overall, there were no big surprises in the data, which nonetheless confirm that economic activity is continuing to slow.
- For now, BCB Governor Galipolo maintains a cautious tone, and the Copom is widely expected to remain on hold at 15% on Dec 10. However, a further slowdown in IPCA inflation just ahead of that meeting should pave the way for it to soften its language (perhaps dropping the reference to being ready to hike further), opening the door to a Q1 rate cut. Analysts see the Selic rate falling to 12% next year, according to the latest BCB Focus survey, broadly consistent with latest market pricing.
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AUD: FX Exchange traded Option
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AUDUSD (5th Dec) 67.00c, sold at 0.06 in ~2.16k.
SONIA OPTIONS: SFIJ6 96.70/96.80 Call Spread Lifted
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