MNI BCB WATCH: Copom's 100BP Guidance Trimmed To One Meeting
MNI (WASHINGTON) - The Central Bank of Brazil tempered the hawkishness of its forward guidance as it lifted interest rates by 100 basis points to 13.25% Wednesday, signaling only a single hike of the "same magnitude" at its next meeting but leaving policy open-ended and data-dependent beyond that point.
The Monetary Policy Committee's (Copom) guidance was a shift from the December decision, when it was set for "two meetings" ahead. The change leaves room for interpretation and could signal that the hiking cycle is nearing its end, or that the board may slow the pace after March while remaining data-dependent. (See MNI INTERVIEW: BCB Likely To Stick To 100BP Guidance-Le Grazie)
"Beyond the next meeting, the Committee reinforces that the total magnitude of the tightening cycle will be determined by the firm commitment to reaching the inflation target and will depend on inflation dynamics," the statement said.
HAWKISH ELEMENTS
On the hawkish side, Copom still sees the balance of risks tilted to the upside and significantly raised its own 2025 inflation forecast to 5.2% from 4.5%, exceeding the upper limit of the 3% target, which is capped at 4.5%.
The projection for the "relevant horizon" remained at 4%, but the outlook stayed unchanged despite a higher interest rate path and the window for when policy's impact is strongest being pushed forward from the second quarter of 2026 in December to the third quarter now.
The board also emphasized the worsening of market inflation expectations and the resilience of economic activity.
SOFTER TONE
At the same time, Copom softened its tone alongside the guidance change, saying the current outlook requires "a more contractionary monetary policy" instead of "an even more contractionary monetary policy," as stated in December.
The statement also highlighted that the committee continues to monitor "closely" how fiscal developments impact monetary policy and financial assets. "The perception of agents about the fiscal regime and debt sustainability continues to significantly impact asset prices and expectations," it added. (See MNI INTERVIEW: Brazilian Real Improvement Is Temporary - Velho)