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Barclays: BCB Signals Express Discomfort With Early Pricing Of Rate Cuts

BRAZIL
  • Members of the BCB's Copom recently sent more hawkish signals saying that “the battle against inflation is not over” and recommending “vigilance,” but Barclays believe the bank was mostly expressing discomfort with an early pricing of rate cuts by the market (February / March 2023 versus Barclays’ forecast of June), rather than an intention to continue to hike the Selic in September.
  • While recent economic activity data have surprised on the upside, revealing a more resilient economy in the short term amid job growth and fiscal stimuli, Barclays still believe the tightening cycle is over with the Selic at 13.75%, waiting for the lagged effects of past tightening to materialize.
  • In their view, the timing of cuts will be determined by a consistent decline in core inflation, fiscal developments post-elections and the behavior of inflation expectations (particularly those for 2024).

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