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JPMorgan Revise BCB Call To 50bps Hike In March

BRAZIL
  • More deteriorated backdrop and tighter global financial conditions should lead the BCB to adopt a more hawkish approach in the face of these renewed inflationary risks
  • On the domestic fundamentals, the extent and pace of the tightening cycle, in their view, will depend significantly on the reaction of asset prices.
  • For now they see recent developments as enough to prompt the COPOM to hike rates by 50bp in the next March meeting, from 25bp previously expected.
  • Baseline scenario is for the SELIC rate to be increased at a 50bp pace in the next decisions, with the SELIC rate reaching 5.50% by the end of the year. Two final 25bp hikes early next year leave our call for terminal rate at 6% by March next year
  • The path of normalization could be lower if the government and Congress are able to timely restore credibility over economic policy management, moving forward with the economic reform agenda. In this case, the SELIC could end this year around 4.5%. For the moment, they are less convinced of a positive development, in particular, given electoral cycle in 2022.
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