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Goldman Sachs Expect Steady And Patient Copom

  • Brazil is the economy where inflation has improved the most (driven to a significant extent by fiscally costly tax cuts) and rates have also clearly peaked. The September IPCA printed at -0.29% mom, the third consecutive negative print, and only marginally higher than the -0.33% Bloomberg consensus.
  • The negative Sep print was driven by the impact of gasoline price cuts and federal and state level tax cuts which led to declining fuel prices, and electricity and telecommunication tariffs. Core inflation moderated at the margin to 0.41%. Goldman Sachs highlight that vehicle fuels (an item with a 7.7% weight in the IPCA index) now has a significant negative contribution to annual headline inflation following large fuel tax cuts and significant gasoline price cuts in recent months.
  • The Copom delivered a hawkish hold at 13.75% in September, bringing the long and deep hiking cycle to an end. In GS’ assessment, the most likely scenario is for the Copom to be steady and patient and hold the policy rate at the current significantly restrictive monetary stance for a while. Consistently, GS expect the Copom to wait until late 2Q2023, or possibly 3Q2023, to start to cut rates.

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