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TD Securities On Copom: Selic Rate To 9.50% By End Of Q2'22

BRAZIL
  • The BCB reiterated the general contents of President Campos Neto's comments last week, and stated that at the present stage the 100bps pace of tightening is "most appropriate to guarantee inflation convergence to the target."
  • In TD's view, there is still currently a risk that the size of hikes may be incremented (not their base case), as the BCB receives additional (unconstructive) information on inflation over time.
  • Perhaps most importantly, the BCB increased the hawkishness of its characterization of the hiking cycle and the cycle's end point. They now imply that the end point of the cycle will be advanced "further into restrictive territory," from the previous characterization of placing the policy rate to "a level above neutral."
  • TD retain their current rates view and see 100bps at each meeting into the end of the year, before the BCB tapers the size of hikes in 2022. They forecast that this will bring the Selic rate to 9.50% by the end of Q2 2022, however they still view the risk bias to their call to be for a higher Selic rate, dependent on the evolution of inflation expectations.
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