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BRAZIL: JP Morgan Expects BCB To Adopt More Hawkish Tone

BRAZIL
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  • JP Morgan expects that the BCB will raise the policy rate by 50bp to 11.25% this week, in another unanimous decision. The statement will likely adopt a more hawkish tone compared to the previous one. Various board members have highlighted numerous inflationary pressures within the Brazilian economy since the September meeting, including a positive output gap, tight labour market conditions with significant wage increases, de-anchored inflation expectations and resilient economic growth.
  • JPM continues to foresee the BCB implementing a 50bp hike in December and a 25bp increase in January, reaching a terminal rate of 12%. However, they acknowledge that the risk is that the central bank needs to do more rather than less going forward, especially in a scenario where the global uncertainty rises on renewed trade tensions and where concerns with fiscal policy pressure risk premia, both developments that contributed to the exchange rate reaching its lowest level since 2021.
  • JPM anticipates that the BCB's inflation projections for 2025 and beyond will remain broadly unchanged, even in a scenario where policy rates approach 12% by early next year. This will reinforce the rationale for continuing the cycle further into restrictive territory to lower inflation expectations and reaffirm the central bank's commitment to achieving its inflation target.
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  • JP Morgan expects that the BCB will raise the policy rate by 50bp to 11.25% this week, in another unanimous decision. The statement will likely adopt a more hawkish tone compared to the previous one. Various board members have highlighted numerous inflationary pressures within the Brazilian economy since the September meeting, including a positive output gap, tight labour market conditions with significant wage increases, de-anchored inflation expectations and resilient economic growth.
  • JPM continues to foresee the BCB implementing a 50bp hike in December and a 25bp increase in January, reaching a terminal rate of 12%. However, they acknowledge that the risk is that the central bank needs to do more rather than less going forward, especially in a scenario where the global uncertainty rises on renewed trade tensions and where concerns with fiscal policy pressure risk premia, both developments that contributed to the exchange rate reaching its lowest level since 2021.
  • JPM anticipates that the BCB's inflation projections for 2025 and beyond will remain broadly unchanged, even in a scenario where policy rates approach 12% by early next year. This will reinforce the rationale for continuing the cycle further into restrictive territory to lower inflation expectations and reaffirm the central bank's commitment to achieving its inflation target.