MNI Brazil Central Bank Review - May 2024: Easing Pace Reduced

Executive Summary:

• At the May 8 meeting, the Copom decided to cut the Selic rate by 25bp to 10.50%, in line with the view shared by a majority of analysts.
• The decision was not unanimous with four members out of nine on the committee voting for a larger 50bp reduction.
• Looking ahead, the committee removed the forward guidance and signalled that it will adopt a more data dependent approach, giving it more room for manoeuvre. Most analysts currently expect another 25bp cut at the next Copom meeting in June.

See the full MNI Review, with a summary of sell-side analyst views, here:

MNI BCB Review - May 2024.pdf

The accompanying policy statement struck a more hawkish tone, with the committee noting that the “uncertain global scenario and the domestic scenario, marked by resilient economic activity and deanchored expectations, require greater caution”. Notably, the committee reiterated the need for monetary policy to continue being “contractionary until the consolidation of both the disinflation process and the anchoring of expectations around the targets”.

The split in the committee was significant, with the four deputy governors appointed by the government all voting for a 50bp cut, while the rest of the Board voted for the 25bp move. Next week’s minutes should provide further details on the reasons for the split.

On inflation, the BCB’s forecast for end-2024 was increased by 30bp to 3.8%, while the end-2025 forecast was raised by 10bp to 3.3%. The de-anchoring of inflation expectations and more uncertain global environment appear to have been key factors in driving the more cautious stance by the committee.