Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI BCB Preview
Executive Summary
- The Copom are widely expected to hike the Selic rate by 100bps to 11.75% at their March meeting.
- This action would be in line with prior BCB communication signalling a reduction of the 150bp hiking pace conducted at the previous three central bank meetings.
- However, a renewal of inflationary pressures following the Ukraine conflict and associated commodity price spikes, has led some analysts to expect a more aggressive hike and a more prolonged tightening cycle.
- The uncertain geopolitical backdrop reduces the likelihood of any pre-commitment on rates, with the BCB favouring future optionality.
Click to view the full preview: MNI Brazil Central Bank Preview - March 2022.pdf
BCB Minutes and Ukraine Conflict Point to Prolonged Tightening Cycle
The minutes of the February meeting were interpreted as hawkish at the margin given the BCB alluded to “additional adjustments at a slower pace in the next meetings”, immediately prompting analysts to revise their terminal Selic rate forecasts upwards. Combined with the developing risks associated with the Russian invasion of Ukraine, analysts’ commentary assumes the BCB are likely to refrain from any meaningful forward guidance on rates in order to maximise optionality at future meetings. Indeed, the DI curve, two years and further out, has shifted roughly 150 basis points higher since the February decision.
Worsening Inflation Outlook Confirmed By Focus
Annual headline IPCA inflation for February rose to 10.54% from 10.38% in January. Core inflation continues to surprise to the upside with significant pressure in industrial/durable goods, driving the annual gauge to 8.4% from 7.88% in January. In the BCB’s most recent Focus Survey, significant adjustments were made to 2022 year-end inflation predictions, with economists now forecasting IPCA inflation at 6.45%. This figure was substantially above the 5.38% figure released before the February meeting and marked a 0.8% increase from just one week ago. Additionally, 2023 year-end projections lie at 3.7% from 3.5%, providing further evidence of the continued contamination of medium-term expectations. Within the same survey, economists added 50bp to both their 2022 and 2023 year-end Selic rate forecasts, adjusting to 12.75% and 8.75% respectively.
Source: Brazil Central Bank
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.