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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI BCB Preview - March 2023
Executive Summary
- All surveyed analysts expect the BCB to keep the Selic rate unchanged at 13.75%.
- Developments since the February meeting provide a challenging backdrop for the committee. Inflation expectations have continued to deteriorate and combining this with the lack of details surrounding the new fiscal framework, the Copom remains fully justified in maintaining its restrictive monetary stance.
- However, the partial reinstatement of taxes on fuels, below expectation growth and a worsening credit outlook, alongside the constant verbal rhetoric from the administration regarding the need for lower interest rates all indicate that a dovish pivot may be on the horizon.
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MNI Brazil Central Bank Preview - March 2023.pdf
New Fiscal Framework Details Yet To Be Provided
It had been the intention of the administration to provide the details of the new fiscal framework before the March 22 BCB meeting in an attempt to have some influence over the Copom’s view of the associated uncertainties to the fiscal trajectory. Government officials have been outspoken in their desire for lower interest rates and have gone as far as quoting the minutes of the February BCB meeting as a potential pathway to reduce the Selic rate as soon as possible.
In most recent communication, finance minister Haddad has said that the administration are choosing not to rush the reform through as details are finely tuned between the President and himself. However, the administration continues to reiterate that they will remain fiscally responsible and the decision to reinstate federal taxes on fuels has been considered a step in the right direction. Analysts have considered this to be a politically unfavourable decision that will benefit the public coffers and if the new fiscal framework emboldens this viewpoint, the BCB may have to acknowledge an improvement of the current scenario.
February IPCA Inflation Data Above Estimates, Expectations Deteriorate
The latest BCB Focus Survey has indicated a further deterioration in inflation expectations. Economists now predict year-end 2023 inflation at 5.95%, an increase from the 5.74% estimate before the last Copom decision. Additionally, year-end 2024 & 2025 consumer prices are now expected to reach 4.11% and 3.90% respectively, rising further above the central bank’s targets and indicating a further deterioration of medium-term expectations.
Although this may change in the lead up to Wednesday’s decison, given the lack of new details on the fiscal framework and the Copom’s explicit mention to “expectations drifting away from the inflation target on longer horizons”, it is hard to see how the committee have enough ammunition to segway to a relatively more dovish bias at this juncture.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.