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Goldman Sachs: New Hawkish Paragraph Captures Increased Risk Of Fiscal Slippages

BRAZIL
  • The Copom reiterated the need to maintain a contractionary monetary stance until the disinflationary process consolidates and inflation expectations anchor around the target. In a new [hawkish] paragraph the Copom stressed the importance of firmly pursuing and meeting the fiscal targets, given their importance for the anchoring of inflation expectations, and hence for the conduct of monetary policy.
  • The new paragraph captures the increase in the risk of fiscal slippages in 2024 but the Copom refrained from adding it as an upside risk to inflation in its characterization of the balance of risks for inflation.
  • The forward guidance did not change: points to the maintenance of the current pace of rate cuts in the next meetings (view held by all directors if the macro scenario evolves as expected). The characterization of the balance of risks for inflation was virtually unchanged; remained broadly neutral.
  • All in, Goldman Sachs expected the Copom to cut the Selic rate by 50bp at the two remaining 2023 meetings, driving the Selic to 11.75% by end-2023; with risk skewed for an acceleration in the pace of easing to -75bp at the December meeting.
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