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BCB Focus Survey Due Before Wednesday Copom Decision

BRAZIL
  • The central bank releases its Focus survey, with analyst estimates for GDP, FX, inflation and Selic rate, on its website at 1225BST/0725ET. This will be the final survey before Wednesday’s Copom decision, where consensus believes the BCB will keep the Selic rate unchanged at 13.75%.
  • Despite the annual rate of inflation falling to 4.16% and consistent verbal criticism from the Lula administration on the need for lower rates, the BCB committee remain resolute with its approach to maintaining the restrictive stance.
  • Persistently high core inflation and a further de-anchoring of short- and medium-term inflation expectations since the last meeting make it premature to start easing the policy stance at this juncture.
  • With that said, President Lula stepped up his verbal barrage on the central bank yesterday, stating that “we can no longer live in a country where the interest rate does not control inflation,” while talking at an event in Sao Paulo to commemorate the Labor Day holiday. “In fact, it controls unemployment in this country, because it’s responsible for a part of the situation that we are living today.”
  • Indeed, Bank of America is actually forecasting a rate cut at this meeting, citing inflation expectations until 2026 now stable (though de-anchored), tightening in domestic credit conditions, the continued cooling of inflation (and underlying measures) and a slowdown in activity.
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