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BRAZIL: Barclays Sees Unanimous 25bp Hike, But 50bp Move Not Ruled Out

BRAZIL
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  • Barclays says that recent Copom communication supports the beginning of a relatively small 150bp tightening cycle this week. On balance, it seems more likely that the board would opt for an initial hike of 25bp.
  • After the 5-4 split decision in May, Barclays believes the board would rather vote unanimously for 25bp than to have a divided vote between a hike of 25bp or 50bp, to prevent the undesired market interpretation that certain board members are more politically constrained (or dovish) than others, as was the case before. However, Barclays would not discard the possibility of a punchier, 50bp hike, as they believe it would make more sense, from a credibility-building perspective, for the Copom to front-load the adjustment in policy.
  • The latter would reduce the risk of the board falling behind the curve, a situation that would be detrimental at a time when the Copom is supposedly looking to strengthen its commitment to the centre of the inflation target.
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  • Barclays says that recent Copom communication supports the beginning of a relatively small 150bp tightening cycle this week. On balance, it seems more likely that the board would opt for an initial hike of 25bp.
  • After the 5-4 split decision in May, Barclays believes the board would rather vote unanimously for 25bp than to have a divided vote between a hike of 25bp or 50bp, to prevent the undesired market interpretation that certain board members are more politically constrained (or dovish) than others, as was the case before. However, Barclays would not discard the possibility of a punchier, 50bp hike, as they believe it would make more sense, from a credibility-building perspective, for the Copom to front-load the adjustment in policy.
  • The latter would reduce the risk of the board falling behind the curve, a situation that would be detrimental at a time when the Copom is supposedly looking to strengthen its commitment to the centre of the inflation target.