The National Monetary Council (CMN) will announce today the inflation target at 8:45 AM (SP time). The Council is headed by the Finance Minister Meirelles, and also includes BCB Governor Ilan Goldfajn and the Minister of Planning Dyogo Oliveira. In our view, a lower inflation target for 2019 would reinforce the outlook for lower inflation and anchored expectations. Additionally, the government made important changes the inflation target framework. From now on, the CPI target will be set three years in advance; until today, the CMN set the target for the calendar-year two years hence. The CMN will also set the TJLP long term interest rate (currently at 7.0%) today. We expect no change to the TJLP in the near future. In addition, the central government budget balance for the month of May will be released sometime during the day. We expect it to post a BRL 20.3 billion deficit.
The Senate’s Constitutional and Justice Committee approved the labor reform by 16 votes in favor, 9 against and 1 abstention. The bill now moves to a final vote in the Upper House floor. According to Estadão newspaper, the vote will take place next week.
New loans decline in May, following back-to-back gains. BCB released the credit figures for the month of May. The daily average of new non-earmarked loans declined 5.1% mom/sa in real terms, driven by drops of 5.2% in loans for non-financial corporations and 5.0% for households. Adjusted for inflation, new earmarked loans fell 10.6% mom/sa, amid a 21.0% drop for non-financial corporations and an uptick of 0.5% for households. The share of state-owned banks in the credit market was unchanged at 55.9%. Seasonally-adjusted delinquency in non-earmarked loans increased 0.2 p.p. to 5.8% among non-financial corporations, and was unchanged among households, also at 5.8%. As for earmarked credit, delinquency increased for both segments, to 2.1% from 2.0%. Interest rates charged on non-earmarked loans dropped to 46.8% from 49.3%, declining for non-financial corporations and households alike. Meanwhile, average interest rates charged on earmarked loans rose to 10.2% from 9.8%, climbing for non-financial corporations and households. In all, the data continues to be consistent with stabilization in new consumer loans, while there are doubts as to whether new businesses loans have effectively stabilized. ** Full story here.
According to FGV’s latest industry survey, business confidence in the industrial sector (FGV) fell 3.0% mom s.a. in June, slightly below the preview (-2.5%). The decline reflects the increase in political uncertainty and suggests the new outlook will indeed affect economic activity in the short term. Current industrial demand rose 0.9% following a steep gain in the previous survey (+9.5%), while expected demand fell 1.1% on the more uncertain outlook. The confidence breakdown shows declines in both the current situation index (-2.2%) and expectations (-3.8%). Capacity utilization fell 0.5pp to 74.2%. Excessive minus insufficient inventories rose slightly to 8.1% (previous: 7.0%). Six out of twenty activities showed an increase (diffusion: 30%), consistent with the weak aggregate result for confidence.
According to Folha de São Paulo newspaper, Supreme Court Minister Edson Fachin decided to send President Temer’s criminal charges to the House of Representatives. Two-thirds of the Lower House (342 representatives) must vote to accept the charges before the case against Mr. Temer goes to trial.
President Temer appointed Raquel Dodge for the position of Prosecutor General. The appointment must be confirmed by the Senate. Mrs. Dodge would replace Prosecutor General Rodrigo Janot once his term expires in September.
BCB placed the full offering of 8,200 FX swaps (USD 410 million) yesterday. After closing, the central bank announced a slightly smaller auction of up to USD 380 million (the remaining amount expiring in July) for today.