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BRAZIL: JP Morgan Raise Selic Rate Forecast To 12%

BRAZIL
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  • Following the publication of the Copom minutes, which confirmed the hawkish shift that accompanied the reversal in the monetary policy direction, JP Morgan have raised their Selic rate forecasts. They now expect two 50bp hikes in the next meetings and a final 25bp adjustment by February to a peak rate of 12% (vs. 11.50% previously).
  • JP Morgan note that the loosening of the fiscal effort since the Copom meeting increases uncertainty on the fiscal front, which plays against their previous call for a more gradual pace of tightening. In addition, they had expected FX pressures to abate more decisively following the BCB hike and Fed cut. However, partly because of fiscal policy, this has not happened. Thirdly, JPM have raised their 2024 CPI forecast to 4.5% on the back of a fast rise in food prices, due to recent droughts. This development reinforces the asymmetry for higher CPI forecasts in the near term, particularly in a scenario where the output gap is positive and inflation expectations are de-anchored.
  • Further ahead, however, JPM still expect rate cuts in the second half of next year, as GDP growth moderates and higher short-term rates reinforce the inflation convergence to target. Against this baseline scenario, they see cuts in 50bp clips in 2H25 with the Selic rate ending the year at a still higher than neutral 10%.
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  • Following the publication of the Copom minutes, which confirmed the hawkish shift that accompanied the reversal in the monetary policy direction, JP Morgan have raised their Selic rate forecasts. They now expect two 50bp hikes in the next meetings and a final 25bp adjustment by February to a peak rate of 12% (vs. 11.50% previously).
  • JP Morgan note that the loosening of the fiscal effort since the Copom meeting increases uncertainty on the fiscal front, which plays against their previous call for a more gradual pace of tightening. In addition, they had expected FX pressures to abate more decisively following the BCB hike and Fed cut. However, partly because of fiscal policy, this has not happened. Thirdly, JPM have raised their 2024 CPI forecast to 4.5% on the back of a fast rise in food prices, due to recent droughts. This development reinforces the asymmetry for higher CPI forecasts in the near term, particularly in a scenario where the output gap is positive and inflation expectations are de-anchored.
  • Further ahead, however, JPM still expect rate cuts in the second half of next year, as GDP growth moderates and higher short-term rates reinforce the inflation convergence to target. Against this baseline scenario, they see cuts in 50bp clips in 2H25 with the Selic rate ending the year at a still higher than neutral 10%.