MNI BCB Review – February 2023: Further Attention Required

Executive Summary

• At the February 01 meeting, the BCB unanimously decided to keep the Selic rate unchanged at 13.75%, in line with expectations.
• In a key hawkish addition to the Copom statement, the committee emphasised that further attention is needed when assessing risks relating to the fiscal scenario and longer-term inflation expectations “which have been drifting away from the inflation target.”
• The committee described the current scenario as “particularly uncertain on the fiscal side” and judged that this scenario “raises the cost of the disinflation that is needed to reach the targets established by the National Monetary Council.”
• The statement stated that the committee remains “vigilant”, however, in another hawkish addition, the Copom will be assessing if the strategy of maintaining the Selic rate “for a longer period than in the reference scenario will be enough” to ensure inflation convergence to the central bank’s target.
• Analysts unanimously acknowledge that the BCB’s language has hardened, and the statement is more hawkish than widely expected. While there is agreement that the risks have increased toward keeping the Selic rate at current levels for longer, there remains no current expectations for the BCB hiking further and many still believe policy easing can occur in Q3 this year.

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MNI BCB Review - February 2023.pdf