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MNI BCB Preview – June 2023: Copom To Signal Imminent Rate Cuts

MNI BCB Preview - June 2023

MNI BCB Preview - June 2023

Executive Summary

  • Consensus believes the Copom will keep the Selic rate unchanged at 13.75%.
  • However, a continued decline for IPCA inflation figures and the substantial improvement for inflation expectations across all time horizons point to the BCB board softening its language in this week’s statement.
  • Indeed, the central bank may use the June meeting to explicitly signal an intention to commence the easing cycle in August.

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MNI Brazil Central Bank Preview - June 2023.pdf

BCB Rhetoric Softens, Administration Pressure Continues

Speaking on Monday June 12, BCB President Roberto Campos Neto noted that while core inflation has been dropping slowly in Latin America, inflation expectations have started to improve. Campos Neto acknowledged that the yield curve in Brazil has dropped sharply and that the market is giving credibility to what is being done, which opens the room for monetary policy action ahead.

The comments, along with the latest data for both inflation and inflation expectations, provide an interesting backdrop for Wednesday’s Copom meeting. All surveyed analysts are expecting an unchanged decision, however, there appears to be a growing consensus that the statement may provide a relatively dovish undertone in acknowledgement of the latest developments, positioning the central bank to commence an easing cycle at the August 02 meeting.

Whether this is soon enough for President Lula remains doubtful. Speaking yesterday, Brazil’s president said interest rates need to go down, there is no explanation, and the Central Bank President needs to explain to the Brazilian people and the Senate why he maintains the rate of 13.75% in a country that has an annual inflation of 5%.

Short-Term Conditions For BRL Turn Increasingly Bullish

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