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BRAZIL: Goldman Sachs Now Expects 100bp Selic Rate Hike Tomorrow

BRAZIL
BulletEM BulletEmerging Market News
  • Following today’s IPCA inflation data, Goldman Sachs says that a strong frontloaded monetary response is needed. They now expect the Copom to deliver a 100bp rate hike to 12.25% on Wednesday, above their previous expectation for a 75bp move.
  • GS notes that industrial goods' inflation is still benign at 2.51% y/y, but is accelerating at the margin, while the policy sensitive core-services inflation printed at a higher-than-expected 0.60% m/m, driving the annual rate to 5.67% y/y. The 3-mma sa of core-services accelerated to 6.5% from 5.3%, and for labour-sensitive services to 5.5% from 4.1%. Tellingly, the inflation momentum for inertial services rose 190bp to 7.4%, and for slack-sensitive services 180bp to 6.8%.
  • Overall, GS says that strong above-trend growth, a tight labour market, intensifying price pressures among services, rising inflation expectations, unhinged BRL, and rising fiscal risk-premia, demand an unequivocal response from the BCB. While GS still sees a 40% probability of a smaller 75bp hike, they believe this would be perceived as a dovish choice and a missed opportunity to move ahead of the curve, which could further unhinge the BRL and inflation expectations.
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  • Following today’s IPCA inflation data, Goldman Sachs says that a strong frontloaded monetary response is needed. They now expect the Copom to deliver a 100bp rate hike to 12.25% on Wednesday, above their previous expectation for a 75bp move.
  • GS notes that industrial goods' inflation is still benign at 2.51% y/y, but is accelerating at the margin, while the policy sensitive core-services inflation printed at a higher-than-expected 0.60% m/m, driving the annual rate to 5.67% y/y. The 3-mma sa of core-services accelerated to 6.5% from 5.3%, and for labour-sensitive services to 5.5% from 4.1%. Tellingly, the inflation momentum for inertial services rose 190bp to 7.4%, and for slack-sensitive services 180bp to 6.8%.
  • Overall, GS says that strong above-trend growth, a tight labour market, intensifying price pressures among services, rising inflation expectations, unhinged BRL, and rising fiscal risk-premia, demand an unequivocal response from the BCB. While GS still sees a 40% probability of a smaller 75bp hike, they believe this would be perceived as a dovish choice and a missed opportunity to move ahead of the curve, which could further unhinge the BRL and inflation expectations.