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BRAZIL: JP Morgan Conviction on 2024 Rate Stability Has Lessened

BRAZIL
  • Amid the growing number of forecasts for BCB hikes this year, JP Morgan’s conviction on rate stability in 2024 is lower now than in the past, as they acknowledge that the board may opt to hike in a bid to front-load the convergence—potentially gaining some credibility in the process. 
  • However, JP Morgan have noted this discussion does not change their stance that Selic will go down in 2025. Rather, in their view, eventual hikes this year would reinforce the space for cuts next year. Previously, JPM had pointed to 100bp of easing starting in June next year, taking the policy rate to 9.5% by the end of 2025.
  • Coupled with the external outlook, the fiscal stance ranks as an important risk to this call. Though concerned with the direction that some discussions on states’ debt renegotiation and payroll tax breaks are taking in Congress, JPM remain of the view that the August 31 budget proposal is the key event to monitor. We expect it to abide by the existing target and framework, and caution that anything short of that could sour the mood.
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