JPMorgan Revise BCB Call To March Hike

JPMorgan Revise BCB Call: Forecast 25 Basis Point Hike At March Meeting

• Despite pandemic-related weakening in near-term activity, JPM bring forward their 25bp SELIC rate hike to March due to the larger stimulus and rising financial stability concerns.
• Recent rhetoric from officials means a new round of cash transfers becomes the base case scenario. With emergency aid boosting demand in the short term, also revise their 2021 IPCA forecast to 4%, from 3.6%.
• The rate hike is likely to be seen by the COPOM as an insurance policy against disruptive market reaction to the fiscal easing and is likely to be followed by regular increases in subsequent meetings.
• Predict the SELIC rate to be around 4.25% by the end 2021 and 6% by mid-2022 from the current 2% level, assuming the government will be able to cap further attempts to continue granting fiscal stimulus and negotiate some off-set measures. However, by starting earlier (March instead of May), the path to rate normalisation could arguably be slower.