From: Daniel Sabba •tt > To: "Jeffrey E." <[email protected]> CC: Paul Morris , Stewart Oldfield Ste anian , "Arian Dwyer" Subject: FW: Faria: Brazil Daily Update [C] Date: Thu, 11 Jun 2015 21:23:36 +0000 , Vahe Richard Kahn Classification: Confidential Original Message From: Isin Sumengen-Ziel (DEUTSCHE BANK AG, LO) [mailto:sumeisiindb®bloomberg.net] Sent: Thursday, June 11, 2015 1:08 PM Subject: Faria: Brazil Daily Update COPOM minutes maintain hawkish tone, signaling further tightening: The BCB published the COPOM minutes explaining last week's decision to raise the SELIC rate by 50bps to 13.75%. There were very few changes in the document, suggesting that the tightening cycle will continue. We now expect another 50bp rate hike for the next meeting in July. We expect this to be the final increase in rates, although the risk seems tilted toward additional hikes. There was a meaningful change on paragraph 28, toward a more hawkish tone. The BCB repeated that two main changes in relative prices (FX depreciation and increase in administered prices) are affecting inflation in the short-run and keeping it high in 2015, but added that this will require "determination and perseverance to prevent its transmission to longer periods." The choice or words could indicate not only that there is more tightening to be done, but also that once the cycle has ended, it could take a relatively long time for the BCB to cut rates again. Regarding the official inflation forecasts, assuming an exchange rate of BRL3.15/USD, SELIC rate of 13.25%, and increase in administered prices of 12.7% in 2015 (up from 11.8%) and 5.3% for 2016 (vs. 5.2%), the passive IPCA forecasts increased and remained above the 4.5% target for 2015, and remained unchanged and above the target for 2016. The BCB is due to publish its revised forecasts in detail in its quarterly Inflation Report at the end of June. Assuming a SELIC rate of 12.75%, exchange rate at BRL3.15/USD and G