MNI BCB WATCH: Brazil Cenbank To Cut 50bp, Focus On Guidance
It is unclear whether the BCB will keep its guidance committing itself to maintaining the pace of cuts until at least June.
Brazil's Central Bank is expected to make its sixth consecutive 50-basis-point reduction in its official Selic rate on Wednesday, taking it to 10.75%, though it is unclear whether it will maintain guidance pointing to additional cuts of the same size at “the next meetings.”
BCB Deputy Governor for Monetary Policy Gabriel Galipolo said recently in public remarks that the Monetary Policy Committee (Copom) would eventually remove the plural from the guidance, but that it would gain nothing by signaling how far it is likely to cut rates, and that data dependency took priority. (See MNI POLICY: G20 CenBanks Worried By Optimistic Rates Markets) The central bank’s former deputy governor for international affairs Alexandre Schwartsman told MNI in February that the board is likely to keep its forward guidance in the plural, indicating further 50bp cuts, until at least its May or June meetings. (See MNI INTERVIEW: BCB Likely To Keep Cuts Guidance -Schwartsman)
NO WAGE PRESSURE
At its January meeting, Copom’s forecasts showed inflation remaining above its 3% target at 3.5% for 2024 and 3.2% in 2025. These were based on the 9.0% Selic rate from the BCB’s Focus market survey, which has remained unchanged and so will be used again for this week’s forecasts. (See MNI: Inflation Expectations Seen Key To Pace Of Brazil Easing)
IPCA inflation was 4.50% in February in year-on-year terms, just down from 4.51% in January and so by a sliver the fifth consecutive monthly deceleration in the annual series. Monthly inflation was 0.83% in February, slightly higher than the 0.79% consensus forecast.
But February’s data are likely to strengthen the case of those on the central bank’s monetary policy committee arguing that wage rises are not feeding inflationary pressures. These members will be able to point to how the biggest components driving services inflation were sectors such as education, which typically sees seasonal increases at the beginning of the year for reasons unrelated to the labor market. (See MNI POLICY: Inflation Data To Ease Brazil Cenbank Wage Nerves)