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Free AccessGoldman Sachs on BCB: Expect Hints For A Possible Smaller End-Cycle Hike
- Given the recent macro-financial developments and the guidance provided at the March 16 meeting, Goldman Sachs expect the Copom to hike the Selic policy rate by another 100bp, driving the Selic policy rate to 12.75%; further into restrictive territory.
- GS also expect the Copom to offer open-ended guidance for the June meeting, while hinting at a possible smaller end-cycle hike.
- In the post-meeting policy statement, more than the conditional inflation forecasts for year-end 2022 against the 3.50% target, we will be paying particular attention to the forecasts for year-end 2023 vis-à-vis the 3.25% target, since in its reaction function the Copom going forward will focus almost exclusively on the 2023 target, making the forecasts at that horizon key to calibrate the pace and cycle-ending terminal Selic rate.
- Given the very challenging current and prospective inflation backdrop, further deterioration of inflation expectations (particularly for end-2023), intense cost-push inflation pressures and structural bullish commodity outlook GS expect the Copom to leave the door open for another smaller Selic hike at the June meeting.
- Bringing the long tightening cycle to an end in June (with a moderate rate hike) would be justified in their view by the weak below-trend real GDP growth profile, lagged effects from an already clearly restrictive monetary stance, well bid BRL, and heightened global geopolitical and economic uncertainty amidst high financial volatility.
- GS expect the Copom to highlight the resilience of the economy during 1Q2022 but to acknowledge the soft outlook for real activity and to recognize the growing dissemination of inflation pressures, including among highly inertial components such as services and core. GS also expect the Copom to discuss the spillover effects on Brazil from the war in Ukraine and underscore the backdrop of uncertainty in an environment of high commodity prices.
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Why MNI
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