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Modi, AMLO Top Major Economy Leader Poll, Macron Last


Under Pressure


Trend Condition Remains Bearish

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  • Given the recent very significant macro-financial developments, much higher than expected Oct IPCA-15 print (1.2% vs. 1.0% consensus) with significantly higher than expected core and services inflation amidst rapidly rising inflation generalization, renewed BRL (underperformance) depreciation pressure, GS expect the Copom to accelerate the pace of rate hikes to at least 150bp at the October 27 meeting, driving the Selic policy rate to a slightly above-neutral 7.75%. Furthermore, they assess a 20% probability of a larger 175-200bp Selic hike.
  • Against a backdrop of deteriorating inflation expectations, while their modal call is for a 150bp hike, GS assess some probability that the central bank could elect to deliver a hawkish market surprise to better anchor expectations and hike 175bp (possibly even 200bp), to a not excessively high 8.00%.
  • In their assessment, the risk-reward and growth-inflation trade-off of an assertive couple of 175bp moves is not unfavorable and could eventually reduce the need for a more aggressive response in 2022, in particular if a more frontloaded Selic path starts to point to below-target projected inflation in 2023.