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Barclays Expect 50bp Cut And Modification To Forward Guidance

BRAZIL
  • Barclays expect the BCB to reduce the Selic rate 50bp for a sixth consecutive meeting, to 10.75% tomorrow. They also believe the Copom will modify its forward guidance for “further reductions of the same magnitude in the next meetings” (plural) to “next meeting” (singular), following strong macro data in January and the latest inflation prints, amid rising real wages.
  • Indeed, some board members recently alluded to the possibility of an eventual change to the guidance. Barclays note that a change to singular would be understood by market participants as hawkish for undermining the probability of a 50bp cut in June, which is still part of their base case for a Selic that reaches 9.50% by late July.
  • Barclays also expect the board to reiterate its strategy of keeping rates at a contractionary level “until the disinflationary process consolidates and inflation expectations anchor around its targets.”
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