presentation of the quarterly inflation report - bcb.gov.br 3t15 ing.pdf · inflation report...
TRANSCRIPT
Inflation Outlook
Luiz Awazu Pereira da Silva
Inflation Report September 24, 2015
2 2
I. Main Message
II. International Environment
III. Financial Conditions
IV. Activity
V. Inflation Developments
Index
3
I. Main Message (1)
The balance of risks has deteriorated, with recent elevations of the risk premmia, which reflect in the asset prices. The monetary policy strategy reaffirms the objective of the Central Bank to set inflation at 4.5% a.a. at the end of 2016, defining the necessary and sufficient conditions to reach it:
1. the maintenance of the current level of the Selic rate, for a sufficiently long period;
but, as it is not possible to be sure if the recent risk premia elevations are temporary or permanent,
2. this demands that the monetary policy, on the one hand, observe with attention the causes of volatility and, and on the other hand, keep vigilant in case of significant deviations of the Copom inflation projections from the target.
4
I. Main Message (2) In addition to our adjustment process (with its external, monetary and fiscal components), there is an ongoing series of non-economic events that affect the confidence and increase the markets’ volatility in Brazil
The recent communication of monetary authorities of advanced countries has not been sufficiently clear to guide the global markets and disperse uncertainties regarding the global growth; these uncertainties have increased the volatility in the assets prices of emerging countries in general, intensifying local negative perceptions in specific cases, as Brazil
In this context, it is necessary to have calm and analytic wisdom and to avoid excessive reaction; it is necessary to proceed with the announced policies, to separate the causes of volatility, to give direction to the market and to preserve its functionality
5
• Process of ongoing macroeconomic adjustment is standard, relevant and necessary; adjustment with three components (external, monetary and fiscal); and two phases (quantity, price)
• Adjustment is producing expected results in two components (external and monetary, e.g., improvement of the external accounts, strong disinflation in 2016, market expectations 9.3% 5.7% or around 360bps); but this needs to be consolidated in the fiscal component that is affecting the risk premia and might de-anchor inflation expectations
• We need to strengthen the economic policy and fundamentals; reinforce the preparation for the external normalization; and build a solid base for a new cycle of sustainable growth
First Results of the Adjustment in 2015
6 Source: BCB
Adjusting the Real Effective Exchange Rate (REER)
60
80
100
120
140
160
180A
ug 9
1
Au
g 9
3
Aug 9
5
Aug 9
7
Aug 9
9
Aug 0
1
Aug 0
3
Aug 0
5
Aug 0
7
Aug 0
9
Aug 1
1
Aug 1
3
Aug 1
5
Jun
94
=10
0
basket of 15 currencies
117.7
avg = 96.0
weaker REAL
stronger REAL
7 Source: The Economist
A Well Known Example: Big Mac Index U
S$
0
1
2
3
4
5
6
7
Ap
r 0
0
Ap
r 0
1
Ap
r 0
2
Ap
r 0
3
Ma
y 0
4
Ju
n 0
5
Ja
n 0
6
Ma
y 0
6
Ja
n 0
7
Ju
n 0
7
Ju
n 0
8
Ju
l 09
Ja
n 1
0
Ju
l 10
Ju
l 11
Ja
n 1
2
Ju
l 12
Ja
n 1
3
Ju
l 13
Ja
n 1
4
Ju
l 14
Ja
n 1
5
Ju
l 15
Brazil UK China US LA (-Brazil) Europe Russia
Price of Big Mac in US$ according to the current exchange rate
8 Source: BCB
External Sector Adjusting: Projection –US$65 bi in 2015
-103.6 -102.7 -102.4 -101.6
-99.3
-94.9
-92.5
-89.4
-84.5
-65.0
-105
-100
-95
-90
-85
-80
-75
-70
-65
-60D
ec 1
4
Jan 1
5
Fe
b 1
5
Mar
15
Ap
r 1
5
May 1
5
Jun 1
5
Jul 15
Aug 1
5
Sep 1
5
Oct 1
5
No
v 1
5
De
c 1
5
US$
bill
ion
, acc
um
ula
ted
in 1
2 m
on
ths
9 9
Revision for 2015 shows intensification in the deficit reduction:
• Estimate of the current account deficit from US$81 billion to US$65 billion (3.7% of GDP) for 2015.
o higher trade surplus, from US$3 billion to US$12 billion (deficit of US$6 billion in 2014) ;
o retreat of US$3 billion in the net expenses of profits and dividends, reaching US$18 billion
• The estimate of net inflows of direct investment liabilities (DIL) was reduced from US$80 billion to US$65 billion, totally financing the current transactions (CT)
• A net inflow of US$31 billion in stocks and securities in the country (denominated in BRL) is forecast, a reduction of US$10.5 billion relative to the previous estimate
• The rollover rate for securities and long-term loans, abroad, was maintained at 100%
Box: Balance of Payments Projections
103.6
81.0
65.0
96.9
80.0
65.0
0
20
40
60
80
100
120
2014 2015-Jun IRProj.
2015-Sep IRProj.
CT DIL
US$
bill
ion
Current Transactions and Direct Investment Liabilities (DIL)
2014: DIL financed 94% of the deficit
2015: DIL should finance 99% of the deficit
(accorging to the Jun-IR projection)
2015: DIL should finance 100% of the
deficit (according to the Sep-IR projection)
10 Sources: BCB and IBGE
Adjustment of Relative Prices: Regulated x Market Prices %
in 1
2 m
on
ths
0
3
6
9
12
15
18A
ug 0
4
Aug 0
5
Aug 0
6
Aug 0
7
Au
g 0
8
Aug 0
9
Aug 1
0
Aug 1
1
Aug 1
2
Aug 1
3
Aug 1
4
Aug 1
5
IPCA
Regulated IPCA
Market Prices IPCA
IPCA Reg. Market 2013 5.91 1.54 7.29 2014 6.41 5.32 6.72 2015 exp.* 9.34 15.20 6.78 2016 exp.* 5.70 5.91 5.61
*median of expectations on Sep 18th
• Regulated prices adjustment (15.75% in 12 months) is part of the fiscal adjustment (e.g., electricity tariffs, CIDE, etc.)
• Reduction of subsidies leads to the improvement of the public debt profile and of the allocation of resources in the economy (increase of the TJLP – long term interest rate, reduction in the loans to BNDES; PSI, etc.)
11 11
• The double adjustment of relative prices (regulated and external) impacts inflation in 2015, elevating 12-month accumulated inflation, and contributes for the improvement of the external account
• It is objective of the monetary policy to curb the transmission of this inflationary impact for 2016 and for longer terms
• The monetary policy can, should and is containing the second-order effects, to circunscribe them to 2015
• As a consequence, it should remain vigilant to ensure the convergence of inflation to the 4.5% target at the end of 2016
Prices Adjustments Impact Inflation, Current Account
12
-150
-100
-50
0
50
100
150
200
250
300
1/2/2015 2/12/2015 3/27/2015 5/12/2015 6/23/2015 8/3/2015 9/14/2015
2015
2016
2017
2018
2019
Source: BCB (Focus)
Expectations Anchored at the Medium Term (1) ch
ange
in b
p, s
ince
Jan
2
9.34
5.70 4.74
Medians on Sep 18
4.50 4.50
278 bp
0 bp
-76 bp
Change since Jan 2
-100 bp
. -50 bp*
vertical lines: Copom meetings, data through Sep 18th *for 2019, change since Jan 12th, 2015
13 Source: BCB (Focus)
IPCA
Expectations Anchored in the Medium Term (2)
*for 2019, expectation on Jan 12th, 2015
%
6.56
5.70 5.50 5.50
5.00
9.34
5.70
4.74 4.50 4.50
0
2
4
6
8
10
201
5
201
6
201
7
201
8
20
19
Jan 2
Sep 18
14 14
• The ongoing fiscal adjustment has already addressed several problems, such as the correction of regulated prices, expenses cuts and reduction of subsidies
• The earmarked credit and the implicit subsidies associated to it have been significantly reduced
• However, loss of strength in the economy, partially related to non-economic events, took to the frustration of incomes and deterioration of the fiscal scenario programmed for 2015
• Change in the parameters for the targets and PLOA (Yearly Budget Draft Law) were not in line with expectations and reflected in risk
• Therefore, the Monetary Policy needs fiscal anchorage to ensure the convergence of inflation to the 4.5% target at the end of 2016
Uncertainties of the Fiscal Adjustment Impact Risk Premia
15 Source: BCB
Fiscal Policy in Transition, Quasi-Fiscal Adjusting
• Real reduction of the expenses since the end of 2014
• But growth below the real incomes’ cycle
• Reduction of BNDES disbursements since the end of 2014
60
80
100
120
140
160
180
200
220
0
20
40
60
80
Jun 0
8
Jun 0
9
Jun 1
0
Jun 1
1
Jun 1
2
Jun 1
3
Jun 1
4
Jun 1
5
Finame (lhs) Total (rhs)
-10
-5
0
5
10
15
Jan 1
4
Feb
14
Ma
r 14
Apr
14
Ma
y 1
4
Jun 1
4
Jul 14
Aug 1
4
Sep 1
4
Oct 14
No
v 1
4
De
c 1
4
Jan 1
5
Feb
15
Ma
r 15
Apr
15
Ma
y 1
5
Jun 1
5
Jul 15
Net income Expenses
% a
ccu
mu
late
d in
th
e ye
ar
R$
bill
ion
R$
bill
ion
Real Growth (IPCA), Central Government
BNDES Disbursements in 12 Months
16
3.00
3.20
3.40
3.60
3.80
4.00
4.20
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
7/1
/2015
7/1
0/2
015
7/2
1/2
015
7/3
0/2
015
8/1
0/2
015
8/1
9/2
015
8/2
8/2
015
9/9
/2015
9/1
8/2
015
Expect. for the 2015 Primary Result Expect. for the 2016 Primary Result2015 Primary Target 2016 Primary TargetR$/US$
Source: BCB
Evolution of the Exchange Rate under the Effect of Expectations for the Primary Result
Revision of the Fiscal Targets
R$
/US$
Loss of the investment grade
by S&P Proposal of 2016 Budget Sent to the Congress
% o
f G
DP
expectations through Sep 18, other data through Sep 22nd
17 Source: Bloomberg
BRL/US$ Exchange Rate (Sep 23) Reflects Risk Premium
Annual
Last 5 days
18 Source: BMF&Bovespa
Yield Curve – Future DI, with Selic at 14.25%
12.5
13.0
13.5
14.0
14.5
15.0
15.5
% p
.a.
Jul 30 – Decision of the Copom and respective communiqué with “maintenance of interest rate level for a sufficiently long period”
Aug 31 – Proposal of 2016 Budget Sent to the Congress
Sep 4 – Perception of the risks’ market associated to the fiscal adjustment
Sep 10 – Brazil sovereign debt loses the investment grade by the risk agency Standard & Poor’s
1 year 2 years 3 years 4 years 5 years 6 years 7 years
Sep 10
Sep 4
Aug 31
Jul 30
19 Source: BCB
Exchange Rate (US$) in LA above the Dollar Index fx
rat
e –
DX
Y (
Jun
e 3
0=1
00
)
others = avg. (Argentina, Peru, Colombia and Uruguay), data through Sep 21st
Exchange Rate – Dollar Index
-5
0
5
10
15
20
25
30
Jun 30 Jul 08 Jul 16 Jul 24 Aug 01 Aug 09 Aug 17 Aug 25 Sep 02 Sep 10 Sep 18
Others Chile Mexico Brazil
20 20
• Context: prices’ realignments circumscribed to 2015; the trajectory of 12-month accumulated inflation will have significant discard effect in 1Q2016; lagged and cummulative effect of the Monetary Policy action
• Factor 1: Sharp fall in the activity, non-economic events. Transmission of the relative prices’ adjustment occurs with process of labor market distension; decrease in the intensity of prices’ adjustments pass-through (including exchange rate pass-through) in the current phase of the cycle
• Factor 2: More recent elevation of the risk premmia in the FX and interest markets; uncertainties about the intensity and promptness of the fiscal adjustment feed volatility
Balance of Risks for the 2016 Inflation
21 21
5.91%
0123456789
1011121314151617
jan
14
jul 1
4
jan
15
ago
15
201
5
201
6
Sources: IBGE and BCB (Focus)
% in 1
2 m
onth
s
Market expectations
from 2015 to 2016*
*position of Sep 18th
Context: Cumulative Regulated IPCA and Projected up to 2016
15.8%
22 Source: BCB (Focus)
Market Expectations for the GDP and Industrial Production
% o
f G
DP
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4O
ct 1
4
No
v 1
4
De
c 1
4
Ja
n 1
5
Fe
b 1
5
Ma
r 1
5
Ap
r 1
5
Ma
y 1
5
Jun 1
5
Ju
l 15
Au
g 1
5
Se
p 1
5
2015 Ind. Prod.
2016 Ind. Prod.
2015 GDP
2016 GDP
-2.70
Sep 18
-0.80
-6.45
0.20
Factor 1: Strong Deceleration of the Activity (GDP and Industrial Production)
vertical lines: Copom meetings
23 Source: BCB
Significant Changes between June and September in the Widening of the Output Gap (in %)
Copom/RI Junho Copom Julho Copom/RI SetembroJune Copom/IR
Factor 1: Effect of Activity in the wider Output Gap
Sep Copom/IR July Copom
24 Sources: IBGE and BCB
Factor 1: Ongoing Distension in the Labor Market (1) %
m/m
-12
gro
wth
% s
.a.
4.5
5.0
5.5
6.0
6.5
7.0
7.5
-5
-4
-3
-2
-1
0
1
2
3
4
Ja
n 1
3
Ma
r 13
Ma
y 1
3
Ju
l 13
Sep
13
Nov 1
3
Ja
n 1
4
Ma
r 14
Ma
y 1
4
Ju
l 14
Sep
14
No
v 1
4
Ja
n 1
5
Ma
r 15
Ma
y 1
5
Ju
l 15
real wages % (lhs) unemployment (rhs)
• Ongoing proccess accelerated; adjustments can occur as a combination of volume and price
• Return of young and elderly tend to contribute to the increase of productivity in the services sector
• Greater competition can benefit the adequacy betweeen wages and productivity; greater return regarding “years of education” creates incentives for improving human capital and productivity
25 Sources: IBGE and BCB
Factor 1: Ongoing Distension in the Labor Market (2)
Interannual change of the 3 Month-Moving Average
%
Population Real Wages
-4
-3
-2
-1
0
1
2
3
4
Ap
r 1
3
Ju
l 13
Oct 1
3
Ja
n 1
4
Ap
r 1
4
Ju
l 14
Oct 1
4
Ja
n 1
5
Ap
r 1
5
Ju
l 15
Employment Monthly Survey -formal jobs
Employment Monthly Survey -total
-2
-1
0
1
2
3
Ju
l 12
Oct 1
2
Ja
n 1
3
Ap
r 1
3
Ju
l 13
Oct 1
3
Ja
n 1
4
Ap
r 1
4
Jul 14
Oct 1
4
Ja
n 1
5
Apr
15
Ju
l 15
Occupied Population
Economically ActivePopulation
26 26
• Demographic evolution influenced several recent changes in the participation rate
• The box evidences that approximately one third of the retreat in the participation rate observed between the end of 2012 and the end of 2014 was due to the change in the composition of working-age population - PIA
• In 2015, the participation rates of young and elderly increased, with important impact in the total participation rate, which contributed to the acceleration in the growth pace of the unemployment rate.
Box: Effect of the Demography over the Participation Rate
-1.2
-0.8
-0.4
0.0
0.4
0.8
1.2
-2.4
-1.6
-0.8
0.0
0.8
1.6
2.4
201
1
201
2
201
3
201
4
201
5
Oc. Pop. Ec. Active Pop.
Unemployment rate (rhs) Participation rate (rhs)
%
Occupied Population, Economically Active Population, Unemployment and Participation
p.p
.
-0.8
0.0
0.8
1.6
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
10-17 18-24 25-39 40-59 60+
p.p
. an
nu
al c
han
ge
Composition of Working-Age Population
27 27
Factor 2: Risk Premmium, Brazil 5y CDS, BBBs and BBs basis
poin
ts
100
150
200
250
300
350
400
450
500
Jan 0
1 1
5
Jan 1
6 1
5
Ja
n 3
1 1
5
Fe
b 1
5 1
5
Mar
02 1
5
Mar
17 1
5
Apr
01 1
5
Apr
16 1
5
May 0
1 1
5
May 1
6 1
5
May 3
1 1
5
Jun 1
5 1
5
Jun 3
0 1
5
Jul 15 1
5
Jul 30 1
5
Aug 1
4 1
5
Au
g 2
9 1
5
Sep 1
3 1
5
Brazil BBs Avg. BBBs Avg.*through Sep 23rd
Source: IBGE
28 28
Box: Impact of Activity and Exchange Rate over Market Prices Inflation
• This box aims, especifically, at verifying how the cooling of the economic activity has contributed to offset the effects of the BRL depreciation over market prices inflation
• Demand shocks contributed negatively for the trajectory of market prices inflation, as opposed to the exchange rate shocks
• In net terms, the positive contribution of the exchange rate was higher than the negative contribution of the demand in around 1.5 p.p. in the first half (from a change of 4.50% of inflation in the same period)
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
Demand shock Exchange rate shock
Co
ntr
ibu
tio
n (
p.p
.)
Contribution of demand and exchange rate shocks over market prices
29 29
Debate and Box: Inflationary Inertia and Inflation Expectations
• This box evaluates the impact of the inertia and expectations components over the inflationary dynamics in Brazil
• The estimates suggest that the current inflation depends significantly on the past inflation
• In relation to the expectations term, the agents forecasts, for shorter terms, are strongly dependent on recent developments, mainly on inflation and on the exchange rate. For longer terms, the monetary stance and the inflation target gain importance.
4.4
4.6
4.8
5.0
5.2
5.4
5.6
5.8
Ju
l 14
Se
p 1
4
No
v 1
4
Ja
n 1
5
Ma
r 1
5
Ma
y 1
5
Ju
l 15
Se
p 1
5
2016
2017
2018%
30 30
• Adjustment in 2015 was occurring with improvement of fundamentals and perception: convergence to the inflation target, improvement of the external scenario, stable assets’ prices, improvement in the agents’ confidence
• Recent deterioration affected perceptions, increased risk premia and there was the downgrading of the sovereign grade; it is necessary to revert to the July 2015 scenario and to implement the proposed and debated additional adjustment fiscal program; essential condition for the success of the other components of the adjustment
• As a consequence, robust domestic market with low hanging fruits, investment opportunities that continue present
• Best contribution for the monetary policy to reduce volatility and to favor growth is to set inflation at the 4.5% target at the end of 2016 and anchor expectations in the medium and long terms
Current Situation demands Attention: Observe to Correct
31 31
Final Balance of Risks Sep 2015:
• Upward risks with the increase of risk and exchange rate premia
• Downward risks in terms of activity (e.g., acceleration in the process of distension in the labor market, moderation of demand and credit)
• Monetary Policy acted to address inflation, positioning the economy to face the normalization of the FED; in the current stress, it is necessary to have wisdom and calm to avoid excessive reaction; proceed with the already announced monetary policy, identifying possible excess in certain risk premia and remaining cautious regarding the implementation of the commitments relative to the fiscal component of the adjustment process
32
II. International Environment • Despite the signs of recovery in some advanced economies, the
decision about the normalization of the interest rates by the Fed shows more complex, opposing data that justify wait-and-see vis-à-vis risks to stay behind the curve
• Uncertainty and greater China factor (structural deceleration) can be adding higher volatility to the financial markets
• Ongoing moderation in the prices of commodities signals end of the hawkish super-cycle
• This context favors volatility, the strengthening of the US dollar relative to emerging markets’ currencies, questions the financial stability of emerging countries and suggests a process of adjustment in the exchange rate, monetary and fiscal areas; some net importing countries improve; the majority of them do not; Brazil is advanced in its homework
33 Source: IMF
Falling Commodities Prices in
dex
(2
00
5 a
vera
ge=1
00
)
Commodities Index and subindices calculated by the IMF
0
50
100
150
200
250
300A
ug 0
0
Aug 0
1
Aug 0
2
Aug 0
3
Aug 0
4
Aug 0
5
Aug 0
6
Au
g 0
7
Aug 0
8
Aug 0
9
Aug 1
0
Aug 1
1
Aug 1
2
Aug 1
3
Aug 1
4
Aug 1
5
Commodities Prices IndexFoodMetalsEnergy
34 Source: Bloomberg
US Dollar Vis-à-Vis Some Currencies
Data through Sep 18th; *dollar index: measures the international value of the dollar against basket of the six main reserve currencies in the world (Swiss franc, Canadian dollar, Japanese yen, pound sterling, euro and Swedish kron)
ind
ex (
5/2
1/1
3=1
00
)
70
75
80
85
90
95
100
105
110
115
120S
ep
13
Nov 1
3
Jan 1
4
Mar
14
May 1
4
Jul 14
Sep 1
4
Nov 1
4
Jan 1
5
Mar
15
Ma
y 1
5
Jul 15
Sep 1
5
Dollar index*
Index of 20 emerging currencies
Euro
Yen
35 35
• Since 2Q2015, the risk aversion increased due to:
• difficulties in the negotiations with Greece;
• retreat in the Chinese stocks markets and floating of the local currency;
• retreat in the commodities prices; and
• uncertainties regarding the liftoff in the US
• This context includes:
• heterogeneous economic recovery in G3;
• devaluation of emerging economies’ and commodities exporters’ currencies.
Retrospective – Abroad (since 2Q2015)
36 36
• Throughout the relevant horizon for the monetary policy, prospects for asymmetric growth inside the G3 (e.g., improvement in the US, QE in Europe and in Japan), and low growth in the emerging economies.
• More rigid funding conditions for the majority of the emerging economies.
Prospects – Abroad 2015-2016
37 Sources: U.S. BEA; Federal Reserve and U.S. BLS
Economic Recovery in the US
% o
f th
e t
ota
l (s.
a.)
% q
/q-4
ch
ange
nonfarm payroll employment (seasonally adjusted)
mill
ion
65
70
75
80
85
-6
-4
-2
0
2
4
6
GDP
Capacity Utilization
100
110
120
130
140
150
Jun 9
5
Jun 9
7
Jun 9
9
Jun 0
1
Jun 0
3
Jun 0
5
Jun 0
7
Jun 0
9
Jun 1
1
Jun 1
3
Jun 1
5
38 Source: Bloomberg
Europe – Growth and Inflation %
q/q
-4 ,
s.a.
GDP Growth – Euro Area Consumer Inflation – Euro Area
% in
12
mo
nth
s
0.10
-1
0
1
2
3
4
Au
g 0
7
Au
g 0
8
Au
g 0
9
Au
g 1
0
Au
g 1
1
Au
g 1
2
Au
g 1
3
Au
g 1
4
Au
g 1
5
1.50
-6
-5
-4
-3
-2
-1
0
1
2
32Q
08
4Q
08
2Q
09
4Q
09
2Q
10
4Q
10
2Q
11
4Q
11
2Q
12
4Q
12
2Q
13
4Q
13
2Q
14
4Q
14
2Q
15
39
6
7
8
9
10
11
12A
ug 1
0
Fe
b 1
1
Aug 1
1
Fe
b 1
2
Aug 1
2
Fe
b 1
3
Aug 1
3
Fe
b 1
4
Aug 1
4
Fe
b 1
5
Aug 1
5
GDP leading indicator
real GDP growth
Source: Bloomberg
China – Gradual Deceleration %
m/m
-12
ch
ange
, % q
/q-4
ch
ange
40 Source: Bloomberg
China: Stock Market and Change of Exchange Rate Regime
1000
2000
3000
4000
5000
6000
6.0
6.2
6.4
6.6
Sep 1
3
Dec 1
3
Mar
14
Jun 1
4
Sep 1
4
Dec 1
4
Mar
15
Jun 1
5
Sep 1
5
Exchange rate (Yuan)
Shangai Composite
Yuan
/US$
41 Fonte: Bloomberg
Volatility
data up to Sep 18th
% p
.y.
% p
.y.
VIX and Volatility in Securities Markets
Currency Volatility
bp
s
40
50
60
70
80
90
100
110
120
10
20
30
40
50S
ep
12
Nov 1
2
Ja
n 1
3
Ma
r 13
Ma
y 1
3
Ju
l 13
Sep
13
Nov 1
3
Ja
n 1
4
Ma
r 14
Ma
y 1
4
Ju
l 14
Sep
14
Nov 1
4
Ja
n 1
5
Ma
r 15
Ma
y 1
5
Ju
l 15
Sep
15
VIX
MOVE
4
8
12
16
20
24
28
Sep
12
No
v 1
2
Ja
n 1
3
Ma
r 13
Ma
y 1
3
Ju
l 13
Sep
13
Nov 1
3
Ja
n 1
4
Ma
r 14
Ma
y 1
4
Ju
l 14
Sep
14
Nov 1
4
Ja
n 1
5
Ma
r 15
Ma
y 1
5
Ju
l 15
Sep
15
BrazilIndiaSouth Africa
42
III. Financial Conditions
• Moderation in the pace of credit concession consistent with the adjustment process and position of the economy in the cycle
• Robustness and soundness of the National Financial System (e.g., capital, provisions and liquidity) remain and ensure financial stability
• Stability of the credit growth has not brought higher delinquency level
43
25.6 25.8 24.3 25.5
28.0 30.4
34.7
39.7 42.7
44.1 46.5
50.3 52.6
54.7 54,6
0
10
20
30
40
50
602
00
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
20
14
201
5*
Source: BCB
Credit/GDP Ratio %
of
GD
P
new methodology as of 2011; *Aug 15
2009-2014: 16.1% (average nominal growth)
2005-2008: 25.4% (average nominal growth)
44 Source: BCB
Credit and Delinquency
Expansion of Credit Outstanding
Delinquency
%
% c
han
ge in
12
mo
nth
s
2.7
2.9
3.1
3.3
3.5
3.7
3.9
Au
g 1
1
De
c 1
1
Apr
12
Au
g 1
2
De
c 1
2
Ap
r 1
3
Au
g 1
3
De
c 1
3
Ap
r 1
4
Au
g 1
4
De
c 1
4
Apr
15
Au
g 1
5
8
10
12
14
16
18
20A
ug
11
De
c 1
1
Ap
r 1
2
Au
g 1
2
De
c 1
2
Ap
r 1
3
Au
g 1
3
De
c 1
3
Ap
r 1
4
Au
g 1
4
De
c 1
4
Ap
r 1
5
Au
g 1
5
45 Source: BCB
Declining Household’s Debt
% o
f th
e in
com
e
% o
f th
e an
nu
al in
com
e
18
19
20
21
22
27
28
29
30
31
32Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Jun 1
3
Dec 1
3
Jun 1
4
Dec 1
4
Jun 1
5
Debt ex-housing
Debt service ex-housing
46 Source: IMF (FSI – last available data)
Financial Soundness Indicators
12.5
12.6
12.9
13.6
14.1
14.1
14.2
14.6
15.0
15.3
15.3
15.4
15.5
15.5
16.6
17.4
0 5 10 15 20
India
Australia
Russia
Canada
Spain
US
Korea
South Africa
Italy
Japan
Mexico
France
Brazil
Turkey
UK
Germany
Basle Index
-38.0
-20.2
-18.4
-17.3
-14.3
-9.6
-8.5
-8.1
-5.6
-3.8
-3.8
4.0
10.9
-50 -40 -30 -20 -10 0 10 20
Spain
Russia
South Africa
India
Japan
Australia
UK
US
Canada
Korea
Turkey
Mexico
Brazil
(Provisions – Delinquency)/ Capital
24.8
34.7
38.7
39.9
41.2
46.6
48.9
79.1
92.4
96.9
118.4
122.6
142.1
187.3
0 70 140 210
India
South Africa
Japan
UK
Australia
Mexico
Canada
Turkey
Russia
US
Korea
Italy
German
Brazil
Net Assets/ Short-Term Liabilities
47
IV. Activity
• 2015 is a year of adjustment, with impact on the activity and growth rates that tend to be low (below potential); reduction in the private consumption is additional factor of contraction
• Non-economic events are added to the contraction cycle and contribute to additional fall of investment; differences among projections are explained through different methods to evaluate these events
• Recovery will happen only as confidence improves
48 Sources: IBGE and Funcex
Supply: Low Dynamism
Industrial Production Services Nominal Income
Crop Harvest Imports Quantum
% 1
2m
/pre
vio
us
12
m
% y
/y-1
% m
/m-1
2, 3
mm
a
% 1
2m
/pre
vio
us
12
m
2015: IBGE estimates in Aug/15
-5.3 -6
-5
-4
-3
-2
-1
0
1
2
3M
ar
12
Ju
l 12
Nov 1
2
Ma
r 13
Ju
l 13
Nov 1
3
Ma
r 14
Ju
l 14
Nov 1
4
Ma
r 15
Ju
l 1516.3
2.7
8.6
-10
-5
0
5
10
15
20
25
30
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
-8.4
-9
-6
-3
0
3
6
9
Apr
12
Aug
12
Dec 1
2
Apr
13
Aug
13
De
c 1
3
Apr
14
Aug
14
Dec 1
4
Apr
15
Aug
15
1.8
0
2
4
6
8
10
12
14
Ma
r 12
Ju
l 12
Nov 1
2
Ma
r 13
Ju
l 13
Nov 1
3
Ma
r 14
Ju
l 14
Nov 1
4
Ma
r 15
Ju
l 15
49 Sources: IBGE and Funcex
Demand: Moderation in Line with Adjustment
Household Consumption FCGF
Government Consumption Exports Quantum
% c
han
ge in
4 q
uar
ters
% 1
2m
/pre
vio
us
12
m
% c
han
ge in
4 q
uar
ters
% c
han
ge in
4 q
uar
ters
-0.6
-1
0
1
2
3
4
5
6
72
Q 1
1
4Q
11
2Q
12
4Q
12
2Q
13
4Q
13
2Q
14
4Q
14
2Q
15
-7.9
-10
-5
0
5
10
15
2Q
11
4Q
11
2Q
12
4Q
12
2Q
13
4Q
13
2Q
14
4Q
14
2Q
15
-0.3 -0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2Q
11
4Q
11
2Q
12
4Q
12
2Q
13
4Q
13
2Q
14
4Q
14
2Q
15
0.4
-4
-2
0
2
4
6
8
Apr
12
Aug
12
Dec 1
2
Apr
13
Aug
13
Dec 1
3
Apr
14
Aug
14
Dec 1
4
Apr
15
Aug
15
50 Source: FGV
Consumer Confidence (ICC): Stabilization of Decrease
Note: Proportion of favorable answers – proportion of unfavorable answers + 100 (100=neutral)
Sep
/05
=10
0, s
.a.
Consumer Confidence Index
70
75
80
85
90
95
100
105
110
115
120
125A
pr
13
Jun 1
3
Aug 1
3
Oct 1
3
Dec 1
3
Fe
b 1
4
Apr
14
Jun 1
4
Aug 1
4
Oct 1
4
Dec 1
4
Fe
b 1
5
Apr
15
Jun 1
5
Aug 1
5
ICC
Current Situation
Expectation
51
Box: GDP Projection
• Revision of the 2015 growth rate, from -1.1% to -2.7% (domestic demand, -5.1 p.p.; and net exports, +2.4 p.p.):
• Supply:
• Agriculture and livestock: 2.6% (1.9% in 2Q2015)
• Industry: -5.6% (-3.0% in 2Q2015)
• Services: -1.6% (-0.8% in 2Q2015)
• Demand:
• Investment: -12.3% (-7.0% in 2Q2015)
• Households’ Consumption: -2.4% (-0.5% in 2Q2015)
• Government Consumption: -1.4% (-1.6% in 2Q2015)
• A 2.2% retreat in the four quarters ending in June 2016
52
V. Inflation Developments • The double relative prices adjustment (regulated and external)
impacted inflation in the first half of 2015, increasing the 12-month accumulated inflation; the objective is to avoid its transmission to 2016 and longer terms, being necessary the maintenance of the current level of the Selic rate, for a sufficiently long period
• There was deterioration in the balance of risks for inflation, but, as it is not possible to ensure today if the recent elevations of risk premia are temporary or permanent, this demands that the monetary policy, from the one hand, observe with attention the causes of volatility and, on the other hand, remain vigilant in case of significant deviations of the Copom inflation projections relative to the target
53
Inflation Developments: Led by Regulated Prices
Sources: IBGE and FGV
change in 12 months (%)
Aug/14 Aug/15
IPCA 6.51 9.53 ▲
Market 6.95 7.70 ▲
Regulated 5.07 15.75 ▲
Tradables 6.81 6.62 ▼
Non-Tradables 7.07 8.60 ▲
INPC 6.35 9.88 ▲
IPC-C1 6.22 10.37 ▲
IGP-DI 4.63 7.80 ▲
IPA-DI 3.41 7.15 ▲
Agriculture 1.91 10.45 ▲
Industrial 3.97 5.94 ▲
IPC-DI 6.76 9.73 ▲
INCC-DI 7.26 7.30 ▲
54
% in
12
mo
nth
s Prices: Slow Adjustment in Non-Tradables
Sources: BCB, IBGE and FGV
Inflation (IPCA) Wholesale Prices and IGP
Services Inflation
% in
12
mo
nth
s %
in 1
2 m
on
ths
% in
12
mo
nth
s
Market and Regulated Prices
8.2
7.7
7.9
8.1
8.3
8.5
8.7
8.9
9.1
9.3
Aug
12
Nov 1
2
Fe
b 1
3
Ma
y 1
3
Aug
13
Nov 1
3
Fe
b 1
4
Ma
y 1
4
Aug
14
Nov 1
4
Fe
b 1
5
Ma
y 1
5
Aug
15
8.6
6.6
2
4
6
8
10
Aug
12
Nov 1
2
Feb 1
3
Ma
y 1
3
Aug
13
Nov 1
3
Feb 1
4
Ma
y 1
4
Aug
14
Nov 1
4
Feb 1
5
Ma
y 1
5
Aug
15
non-tradables
tradables
7.7
15.8
0
2
4
6
8
10
12
14
16
Aug
12
No
v 1
2
Feb 1
3
Ma
y 1
3
Aug
13
No
v 1
3
Feb 1
4
Ma
y 1
4
Aug
14
No
v 1
4
Feb 1
5
Ma
y 1
5
Aug
15
market
regulated
0
2
4
6
8
10
Dec 1
2
Ma
r 13
Ju
n 1
3
Sep
13
Dec 1
3
Ma
r 14
Ju
n 1
4
Sep
14
Dec 1
4
Ma
r 15
Ju
n 1
5
Sep
15
IPP
IPA
IGP
7.82% IGP-10
Sep 2015 7.62%
IPP Jul 2015 7.37%
IPA-10 Sep 2015
55 Sources: IBGE and MTE
Wages: Adjustments in Progress, but still Risks av
erag
e an
nu
al in
crea
se %
Real Wages
* 12m through July
real
ad
just
men
t %
Labor Collective Conventions
-1.6 -2.0
-1.0
0.0
1.0
2.0
3.0
Fe
b 1
3
Aug
13
Fe
b 1
4
Aug
14
Fe
b 1
5
Aug
15
4.0
3.2 3.4 3.2
3.8
2.7
4.1
1.8
2.7
-0.2
-0.5
0.5
1.5
2.5
3.5
4.52
00
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5*
56 56
• Despite the absence of disinflationary contribution of the exchange rate, the market expectations indicate disinflation of 4 p.p. through the end of 2016, around 80% of the necessary to ensure the convergence to the target
• In May 2003 (peak of the cycle 2002/2004), the expectations signaled disinflation of 9 p.p. for the twelve months ahead - around 75% of the 12 p.p. disinflation that really occurred.
Box: Comparison of Desinflation Cycles
4
6
8
10
12
14
16
18
M-1
8
M-1
6
M-1
4
M-1
2
M-1
0
M-8
M-6
M-4
M-2
M0
M+
2
M+
4
M+
6
M+
8
M+
10
M+
12
M+
14
M+
16
M+
18
2002/2004 Cycle 2014/2016 Cycle
Set 11, 2015 Focus May 30, 2003 Focus
% in
12
mo
nth
s
IPCA and Focus projections
57 Source: BCB
Baseline Scenario: Interest rate constant at 14.25% p.y. and exchange rate of R$3.90/US$
BCB Inflation Forecasts
Obs.: 12-month accumulated inflation (% p.y.)
Period
Probability interval
Central projection
50%
30%
10%
2015 3 9.4 9.4 9.5 9.5 9.6 9.6 9.5
2015 4 9.2 9.3 9.5 9.6 9.8 9.9 9.5
2016 1 7.0 7.3 7.5 7.8 8.0 8.3 7.7
2016 2 5.7 6.0 6.3 6.6 6.9 7.2 6.5
2016 3 4.9 5.2 5.6 5.9 6.3 6.7 5.8
2016 4 4.4 4.8 5.2 5.5 5.9 6.3 5.3
2017 1 3.8 4.2 4.6 5.0 5.3 5.7 4.8
2017 2 3.7 4.1 4.5 4.8 5.2 5.6 4.7
2017 3 3.1 3.5 3.9 4.2 4.6 5.0 4.0
58 Source: BCB
BCB Inflation Forecasts
Market Scenario: 2015 Interest rate at 14.25% p.y. and avg. exchange rate of R$3.86/US$ 2016 Interest rate at 12.25% p.y. and avg. exchange rate of R$4.00/US$
Period
Probability interval
Central projection
50%
30%
10%
2015 3 9.4 9.4 9.5 9.5 9.6 9.6 9.5
2015 4 9.2 9.3 9.5 9.6 9.8 9.9 9.5
2016 1 7.1 7.3 7.5 7.8 8.0 8.2 7.7
2016 2 5.7 6.0 6.3 6.6 6.9 7.2 6.4
2016 3 4.9 5.3 5.6 6.0 6.3 6.7 5.8
2016 4 4.5 4.9 5.3 5.6 6.0 6.4 5.4
2017 1 4.1 4.5 4.9 5.2 5.6 6.0 5.1
2017 2 4.2 4.6 4.9 5.3 5.6 6.0 5.1
2017 3 3.7 4.1 4.5 4.8 5.2 5.6 4.6
59
Analysis of the 193rd Copom Minutes Remains Adequate
The Copom evaluates that the inflation convergence scenario to 4.5% at the end of 2016 has remained, despite some deterioration in the balance of risks. The Committee understands that the maintenance of the basic interest rate at 14.25% p.a., for a sufficiently long period, is necessary for the convergence of inflation to the target at the end of 2016.
For the Committee, on the one hand, the advances reached in the fight against inflation show that the strategy of monetary policy is in the correct direction. Under this view, certain remaining risks for the Copom inflation projections to reach safely the objective of 4.5% at the end of 2016 are in line with the lagged and cumulative effect of the monetary policy action. On the other hand, recent elevations of the risk premia that reflect in the prices of assets demand that the monetary policy remains vigilant in case of significant deviations of the Copom inflation projections in relation to the target.
60
Inflation Outlook
Thank you! Inflation Report September 2015