MNI INTERVIEW: BCB To Keep 50BP Pace in December -Goldenstein

MNI (BRASILIA) - The Central Bank of Brazil is likely aiming to hike by 50 basis points twice more and to complete its tightening cycle with a 25bp increase to leave the Selic rate at 12.5%, the former head of its open market operations department Sergio Goldenstein told MNI, though he noted that the BCB could adjust its course depending on the fiscal scenario.

The BCB is already uncomfortably aware of the underperformance of the real versus its currency peers due to rising fiscal risks, Goldenstein, now chief strategist at Warren Rena, said in an interview after the central bank accelerated its tightening pace last Wednesday, increasing the official Selic rate by 50 basis points to 11.25% while stressing that its future decisions remain data-dependent.

"The first highlight of Copom's decision is its heightened tone on the fiscal scenario. The committee had mentioned this issue before, but now it has intensified its tone," Goldenstein said.

"The statement points to significant effects on the risk premium and exchange rate, adding an additional message on the need for presenting and implementing structural measures.” (See MNI BCB WATCH: Hawkish Copom Tone Hints At More 50BP Hikes)

COPOM'S INFLATION FORECAST

The BCB’s Monetary Policy Committee (Copom) projected inflation over its stated policy horizon, now set for the second quarter of 2026, of 3.6%. This was above the 3% target and higher than the previous 3.5% projection for the first quarter of 2026, the goal period at the September meeting.

Although the de-anchoring of expectations suggests faster tightening might be necessary to bring inflation to target within the relevant horizon, the former BCB economist noted that this time frame is shifting forward, which could smooth the need for monetary tightening.

"I interpret 50bps as the ideal pace, and while the chance of accelerating to 75bps is small, it is possible if there’s a significant deterioration in the risk balance. However, the overall size of the tightening cycle is more important than the pace," said Goldenstein.

"Copom's projection for this horizon increased to 3.6%, which wasn’t a surprise but indicates a worsening scenario since the time frame moved from the first to the second quarter of 2026, and moreover, the central scenario assumes a higher Selic rate than was used as a parameter in September,” he said. 

"We expect a terminal rate of 12.5%, with two more hikes of 50bps and a final 25bp hike in March.”