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Goldman Sachs Expect 50bp Cut, But Forward Guidance Likely To Be Changed

BRAZIL
  • Goldman Sachs expect the Copom to cut the Selic policy rate by another 50bp to 10.75% in a unanimous decision on Wednesday. However, they see a significant probability that the current guidance regarding the 50bp pace of rate cuts will be changed, noting that this would give the Copom extra degrees of freedom given a still complex domestic inflation backdrop and uncertain external environment.
  • If the guidance is changed, they attach a 65% probability to the Copom tweaking it by either reinforcing its conditional nature or indicating that this will be the last time guidance for multiple meetings is used. GS see a 25% chance that the BCB shortens the guidance, dropping the plural from “meetings” and so signalling a commitment to just one further 50bp cut in May. They see a 10% probability that the BCB drops the guidance altogether.
  • In the statement, GS will be paying particular attention to the forecasts for both year-end 2024 and 2025 inflation, noting that these forecasts and the overall balance of risks for inflation will be key to calibrate the Selic rate path in the near future.
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