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BRAZIL: Goldman Sachs Expecting BCB Hiking Cycle, Joining Broader Consensus

BRAZIL
EM BulletBulletGlobalEmerging Market NewsRegion
  • Goldman Sachs expect the Copom to validate a moderate, relatively short rate hiking cycle, starting with a 25bp hike at the September 18 meeting. In their assessment, rate hikes are warranted given signs of an overheating economy, a tight labour market and very high wage and household real disposable income growth. In addition, loose pro-cyclical fiscal policy, persistent de-anchoring of inflation expectations, recent BRL depreciation and above-target BCB inflation forecasts all support the case for hiking.
  • GS now expects the Selic to reach 11.50% by year-end, with a 25bp hike in September, +50bp in November and +25bp in December, followed by a final 25bp move to 11.75% in January 2025. They see rate cuts starting in June 2025 (vs. July previously), and the Selic rate ending 2025 at 10.25% (vs 9.50% previously).
  • GS believes that the Brazilian domestic dynamics are such that the Copom is at risk of losing credibility if they do not react to the clear deterioration of the balance of risks for inflation. GS says that were the Fed not cutting, they would likely call for a more aggressive hiking cycle.
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  • Goldman Sachs expect the Copom to validate a moderate, relatively short rate hiking cycle, starting with a 25bp hike at the September 18 meeting. In their assessment, rate hikes are warranted given signs of an overheating economy, a tight labour market and very high wage and household real disposable income growth. In addition, loose pro-cyclical fiscal policy, persistent de-anchoring of inflation expectations, recent BRL depreciation and above-target BCB inflation forecasts all support the case for hiking.
  • GS now expects the Selic to reach 11.50% by year-end, with a 25bp hike in September, +50bp in November and +25bp in December, followed by a final 25bp move to 11.75% in January 2025. They see rate cuts starting in June 2025 (vs. July previously), and the Selic rate ending 2025 at 10.25% (vs 9.50% previously).
  • GS believes that the Brazilian domestic dynamics are such that the Copom is at risk of losing credibility if they do not react to the clear deterioration of the balance of risks for inflation. GS says that were the Fed not cutting, they would likely call for a more aggressive hiking cycle.