Analysts On BCB Easing in 2023 Following Copom Minutes

Goldman Sachs Following BCB Minutes:

• At this juncture, GS are pencilling in a 50bp Selic hike at the August meeting, to 13.75%, and do not rule out an extension of the hiking cycle beyond August if the inflation dynamics prove more persistent/sticky than envisaged in the Copom baseline scenario and the conditional inflation forecasts for 2023 and 2024 move further up.
• In their assessment, given that the monetary policy stance is already highly restrictive we are now entering a late-cycle fine-tuning stage. GS are of the view that, at this juncture, more than significant additional tightening, what will be required going forward is perseverance and grit: i.e., a determination to keep the policy stance restrictive for as long as necessary to place currently highly disseminated price pressures and soon very inertial (sticky) inflation dynamics on a clear downward path.
• Overall, rate cuts are unlikely to materialize much sooner than 2H2023, and likely only moderately so.

JPMorgan Now Expect Cuts To Start Only At The End Of Q2 Next Year

• An important new element of BCB’s strategy is the higher for longer feel to its communication, which in JPMorgan’s view is hardly compatible with rate cuts in 1Q23.
• The more cautious approach by itself would already tilt their balance of risks for the 2023 Selic rate forecasts. But JPM have also been highlighting other factors that work against a faster convergence of inflation to the targets are in play, with political debates pointing to a stronger fiscal impulse in the short term and to higher inflation in the medium-term.
• Faced with such scenario, JPM are changing their 2023 SELIC rate call and now expect cuts to start only at the end of 2Q next year, leading the SELIC rate from 13.75% to 11% by the end of the year – from 9.75% previously forecasted.
• As BCB has been doing, JPM also reinforce the abnormally high degree of uncertainty over that call, not only due to domestic policies uncertainties, in particular after this year’s elections, but also to the global outlook given tighter global financial conditions and a still stretched outlook for global commodities supply.