MNI Brazil Central Bank Preview – Oct 2022: Unanimous Hold

Executive Summary

• After holding rates in September, the consensus view remains that the Copom has ended its tightening cycle. Despite two members voting for a 25bp hike at that meeting, MNI expects a unanimous decision to keep rates unchanged this week at 13.75% as both IPCA readings and inflation expectations continue to moderate.
• With the global inflation outlook remaining difficult, continued hawkish rhetoric from the central bank should accompany the decision.
• Additionally, domestic uncertainties relating to this Sunday’s second-round presidential election vote and associated concerns around the fiscal trajectory provide solid evidence of needing to maintain the restrictive stance.
• Updated inflation forecasts may also provide some clues as to when the Copom might begin monetary easing next year.

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

Disinflation Process Continues, Expectations Are Easing

October IPCA headline inflation saw another notable decline to 7.17%, marginally above the surveyed median estimate of 7.12% but considerably below the September reading of 8.73%, Furthermore, the latest BCB Focus Survey has seen forecasts be further adjusted to the downside, with year-end 2022 estimates now sitting at 5.60%. This is down from the 6.00% prediction before the September meeting. Additionally, year-end 2023 expectations have also declined, falling from 5.01% to 4.94%, continuing the improvement for medium-term expectations.