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JPMorgan Expect Start Of Easing Cycle By October

BRAZIL
  • JPMorgan continue to expect the central bank to start an easing cycle by October in 50bp clips with a final 25bp cut, with the SELIC rate ending 2023 at 12.75% and 2024 at 11%.
  • Inflation is continuing to move down toward the target range with the core services IPCA-15—which historically tends to be stickier—at even lower levels recently. On top of that, demand conditions may be deteriorating as labour market indicators appear to be easing.
  • However, inflation expectations are moving up, influenced by the recent debate about raising the inflation targets, the signals of more proactive fiscal and quasi-fiscal policies to come, and the questions about medium-term sustainability of Brazil’s fiscal accounts and political stability. In JPMorgan’s view, as those crosscurrents are still under way, the new economic team is just starting, and interest rates are already historically high, the BCB will prefer to stay put for now to get more time to assess the outlook.
  • In the post-meeting statement, JPM think that BCB won’t change its assessment of the balance of risks but will rewrite parts of its communication. They expect it will smooth the language on current CPI, affirming that while the deceleration of inflation is still insufficient, there seems to be some progress on the convergence toward the target. On growth, COPOM should also reinforce that the expected economic deceleration is occurring, but now with increasing signals of labour market easing.
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