MNI BCB Review - March 2023: Maintaining Hawkish Posture

Executive Summary

• At the March 22 meeting, the BCB unanimously decided to keep the Selic rate unchanged at 13.75%, in line with expectations.
• Despite several analysts expecting the Copom to soften its tone, the committee reiterated “that it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets”.
• Furthermore, inflation forecasts rose across the relevant horizon for monetary policy and the statement highlighted that inflation expectations have shown additional deterioration. Importantly, the statement still included the phrase that the committee will not hesitate in resuming the tightening cycle if the disinflationary process does not proceed as expected.
• The immediate response from Finance Minister Haddad was that the statement was “very concerning” and that the decision opens room for an undesirable prospect. Condemnation from the administration will likely remain high and this may place even greater importance on the details of the new fiscal framework due to be announced in the coming weeks.
• All analysts agree that the statement is hawkish to expectations, and that monetary easing will not commence until the second half of this year. However, the sell-side remain split over the exact timing of the first rate cut and highlight the heightened level of uncertainty surrounding the administration’s rhetoric and the fiscal outlook.
• Yesterday’s decision will likely support the Brazilian real, especially in the context of a more dovish Fed and weaker greenback. Additionally, some upward pressure should be seen on the front-end of the DI curve in a bear flattening move.

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MNI BCB Review - March 2023.pdf