MNI INTERVIEW: BCB To End Hiking Cycle At 14.75% - Kfoury
MNI (BRASILIA) - The Central Bank of Brazil is likely to deliver a 100-basis-point rate hike this month in line with guidance, then switch to data dependence while concluding its tightening cycle with a 50bp rise to 14.75% in May, the former head of the BCB’s department of economic research Marcelo Kfoury told MNI.
"I think that after the next meeting, there will be no more forward guidance, the central bank is likely to become data-dependent. In my model, which is based on the Taylor rule, interest rates rise to 14.75%," said Kfoury, who participated in Copom meetings as a non-voting member until 2006 and is now a professor in the finance department at Fundacao Getulio Vargas.
"I don't think there will be room for rate cuts this year, so the level should remain high for longer," he added. (See MNI INTERVIEW: BCB Close To Ending Its Hiking Cycle - Volpon)
In January, the BCB’s Monetary Policy Committee, known as Copom, hiked the Selic rate by 100 basis points to 13.25% and signalled one more increase of the same size in March.
OPTIMISTIC INFLATION FORECAST
Kfoury ‘s forecasting suggests interest rates will remain elevated for an extended period, and still be hovering around 12% in 2029, suggesting that the neutral rate may be higher than the central bank’s estimated 4.75% in real terms.
"My inflation projections are closer to the central bank's. The market is more pessimistic, but I think that’s largely due to the real's depreciation at the end of last year, which has partially reversed now," Kfoury stressed.
However, he noted that there is a risk of worsening inflation, which could force the central bank to keep hiking rates beyond May. Additionally, while there were expectations of better harvests this year, they are unlikely to provide as much relief to food inflation as in 2023, he said.
"On the other hand, there are already signs of an economic slowdown. It’s still modest but should become more pronounced in the coming months, which could help bring inflation down."
The former BCB has also highlighted uncertainties in the external environment, including tariff threats from U.S. president Donald Trump and a more hawkish Fed.