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MNI Brazil Central Bank Preview – Aug 2022: Optionality Going Forward

The BCB are widely expected to hike the Selic rate by 50bps from 13.25% to 13.75%.

Executive Summary

  • The BCB are widely expected to hike the Selic rate by 50bps from 13.25% to 13.75%. This would be in line with prior guidance of a hike “of the same or lower magnitude” compared to the June meeting where the Copom hiked by 50bps.
  • Despite headline inflation edging lower since the last meeting, inflation expectations for year-end 2023 have continued to creep higher which is likely to affirm the need for further tightening at this juncture.
  • However, the focus for market participants will be on whether the BCB provide any guidance surrounding future action or whether they provide themselves with complete optionality ahead of the September meeting.

Click to view the full preview: MNI Brazil Central Bank Preview - August 2022.pdf

Central Bank Confirm Higher For Longer

Shortly after the June Copom meeting it became evident that Brazilian policy makers’ strategy is to keep the benchmark Selic at a higher level for longer to ensure that inflation falls back around the target. This was confirmed by central bank Economic Policy Director Diogo Guillen, talking at an online press conference on June 23 alongside the central bank governor and will likely be affirmed in the central bank’s upcoming communication.

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Executive Summary

  • The BCB are widely expected to hike the Selic rate by 50bps from 13.25% to 13.75%. This would be in line with prior guidance of a hike “of the same or lower magnitude” compared to the June meeting where the Copom hiked by 50bps.
  • Despite headline inflation edging lower since the last meeting, inflation expectations for year-end 2023 have continued to creep higher which is likely to affirm the need for further tightening at this juncture.
  • However, the focus for market participants will be on whether the BCB provide any guidance surrounding future action or whether they provide themselves with complete optionality ahead of the September meeting.

Click to view the full preview: MNI Brazil Central Bank Preview - August 2022.pdf

Central Bank Confirm Higher For Longer

Shortly after the June Copom meeting it became evident that Brazilian policy makers’ strategy is to keep the benchmark Selic at a higher level for longer to ensure that inflation falls back around the target. This was confirmed by central bank Economic Policy Director Diogo Guillen, talking at an online press conference on June 23 alongside the central bank governor and will likely be affirmed in the central bank’s upcoming communication.

Keep reading...Show less