COPOM Review

Brazil Central Bank: COPOM Left Selic Rate Unchanged at 2.00% overnight as expected.

• Key passage from the statement: "A scenario of inflation expectations converging to the target suggests that the conditions for maintaining the forward guidance may soon no longer apply".
• Additionally, the Committee removed the section explicitly mentioning "remaining space for monetary policy stimulus, if it exists, should be small."
• Small hawkish interpretation, however, immediately followed up by, "which does not mechanically imply interest rates increases, since economic conditions still prescribe an extraordinarily strong monetary stimulus".
• Overall, given the rhetoric and higher revised inflation forecasts, it seems likely the BCB will remove the forward guidance early next year. Fiscal developments and inflation will be closely monitored for clues as to when policy normalisation might begin.