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Goldman Sachs Say Copom To Offer Open-Ended Data-Dependent Guidance

BRAZIL
  • Given the recent macro-financial developments and the guidance provided at the June 15 meeting, Goldman Sachs expect the Copom to hike the Selic policy rate by another 50bp, driving the Selic policy rate to 13.75%; further into restrictive territory.
  • They expect the Copom to also offer open-ended data-dependent guidance, leaving the door open for another hike in September of identical or lower magnitude, but with the bar for additional hikes possibly set at a higher mark. That is, there is a reasonable probability that Wednesday’s hike is the last of the long cycle that started in March 2021 when the policy rate was at just 2.00%.
  • GS expect the Copom to highlight the resilience of the economy during 1H2022, but at the same time to acknowledge the underwhelming outlook for growth in 2H2022 and 2023 given the high inflation environment and tighter financial conditions, and to underscore the growing dissemination of inflation pressures, including among highly inertial components such as services and core.
  • GS also expect the Copom to continue to stress that the Brazilian economy is facing an environment of much higher than usual uncertainty, and the recent renewed increase in international crude oil prices.
  • In the post-meeting policy statement, GS 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 is now mostly focused on the 2023 target, and also the forecasts for year-end 2024 vis-à-vis the 3.0% target since the 2024 target will now have a small but gradually larger weight in the central bank reaction function.
  • These forecasts and the overall balance of risks for inflation will be key to calibrating the pace and cycle-ending terminal Selic rate.
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