MNI BCB WATCH: Copom Set To Cut Rates, Slower Pace Possible

Brazil’s Central Bank is expected to cut interest rates for a seventh consecutive meeting Wednesday, with markets increasingly leaning toward a slower quarter point reduction after BCB chief Roberto Campos Neto hinted committee guidance for another 50bp cut was conditional.

In March, the BCB's Monetary Policy Committee (Copom) reduced the Selic rate 50bps and indicated it expected an additional cut of the same size at the next meeting in May, maintaining the pace adopted since the start of the easing cycle, in August 2023. (See MNI INTERVIEW:Policy Pivots Unmoor Expectations-Ex BCB's Viana)

However, Campos Neto said last month the board is "not afraid to do what's needed" if economic trends change, adding that its forward guidance is now data-dependent after increasing global stress and the government’s revision to its 2025 fiscal target.

MARKET DIVIDED

At the time, the BCB governor detailed four possible scenarios for the next meeting, and part of the market interpreted that this would mean reducing the pace already in this decision.

Former BCB deputy for monetary policy Bruno Serra Fernandes told MNI in an interview everything fits within these four scenarios described by Campos Neto, and a 50bp cut is still on the table, but a 25bp pace is more likely now. (See MNI INTERVIEW: Brazil Could Hike Rates In 2025 - Ex-BCB Serra)

On the other hand, former BCB deputy for monetary policy Luiz Fernando Figueiredo told MNI that a 50bp cut is still more likely, though unaccompanied by clear signaling toward further reductions. For June, he thinks that Copom will continue the easing cycle by a 25bp pace. (See MNI INTERVIEW: BCB Still Likely To Cut By 50 In May-Figueiredo)

According to Bloomberg and the BCB Focus survey released on Monday, the majority in the market expects a 25bp cut to 10.50% at this meeting. Until last week, the median forecasts in Focus pointed to a 50bp reduction.