April 29, 2024 14:11 GMT
Analysts Questioning BCB Guidance for May 08 meeting
BRAZIL
- Last week’s IPCA-15 inflation data confirmed that the inflation backdrop continues to improve, keeping the door open to further rate cuts. However, recent fiscal and global financial developments have seen some analysts pare back their expectations for the May 08 COPOM meeting to 25bp.
- Pantheon expect headline inflation will hover around the current rate over the coming months, before ending the year at around 3.5%. Risks, however, remain tilted to the upside, particularly given the BRL sell-off. In their view, this and a more cautious COPOM mean the most probable scenario is a 25bp rate cut, slowing from the 50bp pace at previous meetings.
- This is in line with JP Morgan, who also now expect a 25bp cut in May (and subsequent two meetings), given the tightening in global financial conditions and deterioration of the fiscal outlook, coupled with higher inflation expectations.
- Meanwhile, Goldman Sachs note that core-services underlying price dynamics continue to merit attention. In their view, a tight labour market, expansionary fiscal policy and weak fiscal anchor also demand caution in the near-term calibration of monetary policy.
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