The Brazilian central bank cut its key benchmark rate as expected by 50 bps yesterday, from 13.25% to 12.75%. It’s the second consecutive cut by this size after holding the policy rate steady for a year at 13.75%. Contrary to last month’s split decision (5-4), it was unanimous this time. The MPC (Copom) anticipates further reductions of the same magnitude at the next meetings if the base scenario plays out, bringing the Selic rate at 11.75% by year-end.
Copom’s inflation projections in the reference scenario stand at 5% for 2023, 3.5% for 2024, and 3.1% for 2025. That’s slightly higher than in June, mainly because of a weaker than expected local currency. In its opening statement, the BCB stressed that the global environment became more uncertain. The Committee noted an increase in long-term interest rates in the US as well as forecasts of lower growth in China, both demanding further attention from emerging market economies. USD/BRL rose from 4.8450 to 4.88, but this was mainly post-Fed USD strength.
New Zealand GDP growth significantly beat forecasts, rising by 0.9% Q/Q in Q2 (vs 0.4% consensus). GDP rose 3.2% over the year ended June 2023 compared with the year ended June 2022. Business services was the biggest driver of growth, largely due to computer system design.
A minor, but symbolic upward revision to Q1 growth (0% from – 0.1%) implies that the country narrowly dodged the technical recession bullet (Q4 2022: -0.5% Q/Q). Looking at GDP from the expenditure side, growth clocked in at 1.3% Q/Q. Private consumption (+0.4%), government expenses (+2%) and net exports (+3% Q/Q) were the main drivers. The kiwi dollar can’t keep up with global USD strength, though money market now almost completely discount another 25 bps rate by the RBNZ by early next year.
