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MNI POLICY: Brazil's Copom Muddles Signal About Terminal Rate

(MNI) BRASILIA

Analysts are raising forecasts for the terminal rate and some even think Brazil's easing cycle could already be over.

The Central Bank of Brazil's decision to slow the pace of interest rate cuts appears to have sent a confusing signal to investors about how soon policymakers intend to stop reducing borrowing costs, raising concerns about how to better communicate policymakers' future intentions, MNI understands.

The pricing out of additional rate reductions seems to be the opposite result that was expected through the previous communication strategy, which indicated officials saw a slowing of the pace of cuts as a way to lengthen the rate-cutting cycle. (See MNI POLICY: Copom Dissenters Feared Reaction Function Misstep)

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The Central Bank of Brazil's decision to slow the pace of interest rate cuts appears to have sent a confusing signal to investors about how soon policymakers intend to stop reducing borrowing costs, raising concerns about how to better communicate policymakers' future intentions, MNI understands.

The pricing out of additional rate reductions seems to be the opposite result that was expected through the previous communication strategy, which indicated officials saw a slowing of the pace of cuts as a way to lengthen the rate-cutting cycle. (See MNI POLICY: Copom Dissenters Feared Reaction Function Misstep)

Keep reading...Show less