All surveyed analysts believe that the Copom will continue the easing cycle with another 50bp cut, bringing the Selic rate down to 10.75%.
While another 50bp rate cut is widely expected by the market, recent communication from different BCB officials has highlighted the possibility of changes to the guidance regarding the pace of rate cuts going forward. In January, the BCB indicated that more cuts of the same 50bp magnitude would come in the "next meetings," effectively committing policymakers to the current pace until at least the May decision. More recently, however, deputy governor for economic policy Diogo Guillen has said that the forward guidance is “conditional on the expected scenario, which markets ignore”. He also said that the Copom will evaluate whether the signal is appropriate at each meeting.
Inflation Pressures Edge Lower, But Services Inflation Still A Concern
IPCA inflation surprised slightly to the upside in January and February, with the January outturn raising some concerns over the trend in services inflation. Nonetheless, the headline rate has continued to edge lower, reaching 4.50% y/y in February, from 4.62% at the end of last year, and BCB Governor Campos Neto has recently said that there was no “red light” for the central bank regarding the convergence of inflation to the central bank’s 3% target, despite the worsening of services inflation.
