MNI BCB Review - June 2023: August Meeting Live Following Softer Language

Executive Summary

• At the June 21 meeting, the Copom unanimously decided to keep the Selic rate unchanged at 13.75%, in line with expectations. The BCB also met analyst expectations by softening the tone of the statement, which is undoubtedly less hawkish than prior communication.
• The immediate reaction among analysts has been that despite removing the more hawkish language from previous statements, policymakers included several indications they still are not ready to reduce rates.
• Therefore, many remain divided as to whether the BCB will cut rates in August, however, MNI believe the stage is now set for the committee to commence the easing cycle. The key passage in the statement is how the Copom “judges that the strategy of maintaining the Selic rate for a long period has been adequate to ensure the convergence of inflation”.
• The use of “has been” could provide evidence that the BCB have reached the stage where they would be comfortable beginning rate cuts, likely in a moderate and gradual manner.
• The obvious caveats were included to retain a cautious and hawkish stance. The statement reiterated that “it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets. The Copom also “judges that the current scenario demands patience and serenity in the conduct of monetary policy and reminds that the future steps of monetary policy will depend on the inflationary dynamics”.

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MNI BCB Review - June 2023.pdf