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MNI BCB Preview - May 2023
Executive Summary
- Consensus believes the Copom will keep the Selic rate unchanged at 13.75%.
- Despite the annual rate of inflation falling to 4.16% and consistent verbal criticism from the Lula administration on the need for lower rates, the BCB committee remain resolute with its approach to maintaining the current restrictive stance.
- Persistently high core inflation and a further deterioration of short- and medium-term inflation expectations make it premature to start easing policy at this juncture.
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MNI Brazil Central Bank Preview - May 2023.pdf
Administration Desires Versus BCB Caution
Verbal criticism from the Lula administration, led by the President and his finance minister, Fernando Haddad, has been relentless since the March meeting. The president has made numerous references to the interest rate being too high, consistently grading it as a major problem for the nation. The latest remarks from Lula stated that “we can no longer live in a country where the interest rate does not control inflation. In fact, it controls unemployment in this country, because it’s responsible for a part of the situation that we are living today.”
BCB Governor, Roberto Campos Neto, has remained steadfast that the central bank’s approach is correct and will not be prematurely influenced. He has stated that “the technical timing is different from the political timing” in guiding decisions on rates. “And that’s why the central bank’s independence is so important.” Campos Neto added any central banker prefers to cut rates than to lift them, and officials “want to find the structural conditions” to ease the policy. He added that the new fiscal rule presented by Lula to Congress “goes in the right direction.” However, he has indicated that the central bank needs to wait to judge its effects on inflation expectations.
Disinflation Continues For Now, Inflation Expectations Deteriorate
Since the last Copom meeting, inflation readings have further declined, however, the backdrop and outlook remain challenging. The mid-April reading of IPCA headline inflation clocked in at 4.16% and was marginally below the median surveyed estimate, representing a decline from 5.60% before the March meeting. Despite this easing in the data, services and core inflation remain at a high level, which policy makers have been clear still warrant the need to preserve the BCB’s restrictive monetary policy stance.
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.