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At Wednesday's meeting the Copom are expected to deliver their second consecutive 75bps hike, raising the Selic rate to 3.5%. The language of the post-meeting statement will be eagerly eyed to decipher clues relating to the likelihood and magnitude of future tightening.
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MNI POV: Arguments for Greater Than "Partial" Normalisation May Be Building
The full preview with analyst views can be found here:
Prior Communication – In the March statement the BCB outlined their intentions for the May meeting clearly:
"For the next meeting, unless there is a significant change in inflation projections or in the balance of risks, the Committee foresees the continuation of the partial normalization process with another adjustment, of the same magnitude, in the degree of monetary stimulus."
While the board stress their decisions depend upon the evolution on a multitude of economic factors, there have been no data or events that might prompt any surprises at this meeting regarding the previous decision.
Markets – Participants will be focused on whether the central bank sticks to similar language used at the March meeting relating to a partial normalisation. Given the unanimous consensus for the decision on rates, clues on further tightening and the magnitude of those moves will be eagerly eyed for any potential marginal implications for markets.
State-Of-Play - Inflation expectations have been revised higher since the March meeting. The latest focus survey sees 2021 expectations at 5.04% up from 4.60% and 2022 year-end inflation at 3.61%, up from 3.50%. Considering the BCB believe the 2022 year-end figure to be the most relevant for the policy horizon, this increase, albeit small, is significant as it confirms a potential de-anchoring of medium-term expectations.