MNI BCB Preview - January 2021: Forward Guidance - Last Dance

Full preview including sell-side summaries here:

COPOMPrevJan21.pdf

We expect the Selic Rate to be left unchanged at 2.00%. Our base case assumes the removal of Forward Guidance at the March meeting, where COPOM will have greater certainty the forward guidance is no longer warranted.

• Economy: Expect the Copom to acknowledge that the latest set of inflation data were higher than expected with December IPCA rising to 4.52% y/y, surpassing the midpoint of last year's 4% target. Despite the intense short-term inflationary pressures, markets expect the BCB to maintain the stance that current price shocks were narrow based and are expected to be transient.
• It is widely expected that conditional inflation forecasts under the baseline scenario will be marginally revised higher for 2021 from 3.4% at the December meeting, but remain below the 3.75% target. For 2022, it is expected that inflation forecasts remain broadly constant and close to the 3.50% target, which becomes increasingly more relevant for policy. It is likely the BCB will acknowledge the continuation of positive growth momentum during Q4, however, this may be offset by a deterioration of the pandemic, specifically in the last month.
• The tempering of any bias towards an overly hawkish statement may have merit, allowing the committee to digest developments in three areas. First of all, the pandemic second wave effects and associated vaccine logistics, secondly, the Lower house speaker vote and reconvention of Congress and finally, further available evidence surrounding the inflation surge and any transitory behaviour.