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JPMorgan On Brazil: Revise Terminal Selic Rate Call To 11.75%

BRAZIL
  • Expecting higher commodity prices next year, JPMorgan raised next year's IPCA forecast from 4.7% to 5%, which still represents a slowdown but less so than before.
  • With prospective inflation rising and fiscal uncertainties lingering for longer, last week JPM also fine-tuned their monetary policy call.
  • They continue to expect BCB to hike 150bp at the December meeting, as long as there is no further fiscal deterioration in the proposal of a constitutional amendment to cap court-ordered payments in 2022 and recalculate the spending cap that has been approved in the Lower House.
  • However, they adjusted their call for the first meeting of 2022 from 100bp to 150bp believing the BCB won't be willing to signal a deceleration of the pace that soon.
  • JPM maintain their call for a final 100bp hike in March, as BCB's target horizon already will have mainly moved to 2023, leaving the terminal SELIC rate at 11.75%.
  • They think that the central bank will keep rates stable at least until the second quarter of 2023, waiting for more fiscal visibility, particularly after J.P. Morgan's US economists changed the Fed funds rate call to two hikes in September and December 2022.
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