MNI INTERVIEW: BCB To Step Up Hiking Pace In Nov.-Figueiredo

MNI (BRASILIA) - The Central Bank of Brazil could well opt for a larger half point interest rate increase at the next meeting in November given the hawkish tone adopted in its latest policy statement, former BCB deputy for monetary policy Luiz Fernando Figueiredo told MNI.

“Based on what we saw in the decision statement, it's possible they will accelerate the pace to 50 bps in November, but we still have a month and a half ahead, and we need to assess what will happen. Apparently, this cycle will total 150 bps. It's worth moving faster so the horizon (where monetary policy takes effect) doesn't stretch too far," Figueiredo, now board president at Jive Investments, said in an interview.

He thinks the BCB will deliver two more 50 bp hikes this year and one final 25 bp increase in January 2025.

"We need to see if fiscal policy going forward won't be as expansionist, that would help the central bank," he said, adding that the real might be stronger, especially because the Federal Reserve initiated its easing cycle. (See MNI INTERVIEW: Mesquita Sees 25BP BCB Hike, 50 Not Ruled Out)

The Monetary Policy Committee (Copom) unanimously decided to raise its official Selic rate by 25 basis points to 10.75% Wednesday, after holding borrowing costs steady for two consecutive meetings. This marks the first hike since August 2022, following nearly a year of aggressive easing. (See MNI BCB WATCH: More Copom Hikes To Come, Pace Data-Dependent)

STRONG ACTIVITY

Figueiredo cautioned a notable slowdown in economic activity over the next few months could limit the extent of hikes.

"Strong activity could have two reasons. One is that we are still experiencing a significant effect from the economic reforms made over the past six years, which greatly help the economy grow. But we have also seen a strong fiscal impulse, which was around 2% of GDP last year and about 1.5% in the first half of this year. That's a lot," he said.

The former BCB deputy noted Copom has shown it can pivot quickly, having shifted from an aggressive cutting cycle to a renewed bout of tightening in just a matter of months.

"Inflation expectations have risen significantly, especially over the course of this year, for the years 2025 and 2026, which is unanchored," he said.

Brazil's economy is operating above potential, estimated between 2% and 2.5%. "We are around 3%," he said. On the other hand, the interest rate differential between Brazil and the United States has increased significantly, which helps the exchange rate stabilize at a lower level, said Figueiredo.