JPMorgan See Brazil Selic Terminal Rate At 12.25%, Prior 11.75%

Further On JPMorgan’s Revised Selic Terminal Rate Call:

• Last week’s COPOM statement was slightly more dovish than JPM anticipated by explicitly suggesting a slowdown in the pace of hikes in the next meetings. But, in today’s minutes, the committee adjusted the tone and was more explicit in that BCB sees the need of tighter monetary policy stance than the reference scenario where rates go up to 12% in May, fall to 11.75% at the end of this year and to 8% in 2022 to timely drive inflation back to the target path.
• Due to further deterioration the short-term inflation outlook and rising fiscal concerns, today’s communication indicates that the BCB is willing to go a step further, and prefers a combination of both higher terminal rates in the short-term and keeping rates high for longer.
• JPMorgan now look for an additional hike of 50bp in May, on the top of their expected 100bp in March, with a terminal SELIC rate to 12.25% (from 11.75% previously expected). This more hawkish approach from the monetary authority, in the short-term, also leads them to think that the easing cycle can start earlier next year, yet not as soon as anticipated by the markets.
• Assuming the next government delivers a more pragmatic approach towards fiscal policy outlook, JPM move their first 50bp cut from the beginning of 2Q23 to the end of 1Q23.