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BRAZIL: JP Morgan Adjust BCB Forecast, Expect 25BP Hike on Sep 18

BRAZIL
  • JP Morgan, who had previously forecasted a wait-and-see strategy from the BCB, are now expecting a 25bp hike in September, with an additional three hikes to end at 11.50%. They keep their 2025 SELIC rate forecast unchanged at 9.50% with an easing cycle starting in the second half of the year. Details below:
    • “While we still think no-hikes would be the appropriate course of action, the developments of this week, mostly on the financial-expectations channel, with less of consequence coming out of economic data, should tilt BCB to enter a mini-hiking cycle to fasten the inflation convergence to the target and try to reinforce its credibility.”
    • “The exchange rate, at the same time, depreciated further to consolidate its position among the three worst performers of the year. The consequence for monetary policy is that using the assumptions for the BRL and 2025 inflation expectations, the central bank’s forecast for 1Q26 rose two-tenths, moving further away from the central bank’s 3% target.”
    • “In addition, BCB intervened in the exchange rate this week. While justified by one-off outflows, BCB resisted to intervene in the past and the fact their members are more comfortable in doing so now amid a hawkish turn in the speech is another hint towards hikes ahead.”
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