MNI: BOC Says Has Made Progress on Inflation, Must Finish Job

BOC SAYS HAS MADE PROGRESS ON INFLATION, MUST FINISH JOB

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Barclays: Unusual Level Of Uncertainty Warrant More Open-Ended Statement

BRAZIL
  • In Brazil, inflationary pressures remain widespread, going beyond the larger shocks in energy and food prices. Barclays expect Copom’s own inflation forecasts to go up this week, although they will likely remain below market forecasts.
  • The upward pressure will come from recent surprises in current inflation (e.g, in March’s Inflation Report, the BCB expected the IPCA to rise 2.1% in the March-May period, which now looks more like 2.8% according to Barclays’ forecasts) and 2023 inflation expectations; offsetting some of those pressures are: (i) the change in the electricity surcharge called “tariff flag” to level green (a -15bp effect versus the BCB’s previous assumption of “yellow”); (ii) the modest appreciation of the BRL versus the March meeting; and (iii) a higher terminal Selic to be imputed in the model (13.25% per the latest Focus survey, instead of 12.75% in the previous meeting).
  • As inflation expectations continue to drift away from the 2023 target of 3.25%, Barclays expect Copom to hike the Selic 100bp on Wednesday, leaving the door open for another adjustment in June “if necessary.”
  • Even though the BCB has traditionally chosen to be more assertive in its communication, we believe that the current stage of the cycle and the unusual level of uncertainty surrounding risks to inflation (mostly to the upside) would warrant a more open-ended statement at this time to afford more degrees of freedom for future decisions (similar to what the Copom did in the easing cycle in mid-2020, when it did not announce a formal end to that cycle).
  • In their view, the persistence of widespread and sustained inflationary pressures will likely motivate another hike in June, when the terminal Selic would reach 13.25%.
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