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JPMorgan Maintaining View Of Stable Rates Until Mid-2023

BRAZIL
  • JPMorgan believe that BCB will keep the policy rate on hold at 13.75% next week, in line with consensus and despite the market pricing of chances of a hike at this and coming meetings. They note that the bar for a hike at the next meeting is high, maintaining their view of stable rates until mid-2023.
  • However, JPM recognise the rising odds that rates stay high for longer next year, given the asymmetrical risks toward looser-than-expected fiscal policy and a more challenging global outlook if a new round of global monetary tightening is required at some point next year.
  • There were improvements in Brazil’s inflation and signals of economic growth deceleration since the last meeting, but the highlight is that fiscal uncertainty increased substantially. This fiscal discussion should dominate the debate around the next monetary policy decisions. Absent of any confirmation on the fiscal decisions, it seems optimal to avoid pre-committing to any given scenario next week.
  • As far as the statement is concerned, BCB should recognize that the balance of risks deteriorated since the last meeting, in line with recent speeches. BCB should also mention in the statement that a deterioration of the fiscal path pressures the country’s risk premium and that the elevated fiscal risk could create an upward asymmetry in the balance of risks.
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