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Wells Fargo Say Policymakers May Be Approaching An Inflection Point

BRAZIL
  • BCB policymakers have maintained one of the highest real interest rates in the world since the start of the tightening cycle. Right now, real interest rates are close to 10%, which has attracted capital flows toward Brazil and helped the Brazilian real rally this year.
  • But, with inflation softening rather quickly over the past 12 months, Wells Fargo believes policymakers may be approaching an inflection point and may signal that easing is imminent at this week's meeting.
  • To that point, Roberto Campos Neto, head of Brazil's central bank, recently communicated relatively dovish commentary around the path forward for interest rates. Campos Neto noted that inflation has come down quicker than expected, and the need for especially tight monetary policy may not be appropriate at the current juncture.
  • In Wells Fargo’s view, BCB policymakers will likely make a more explicit shift to signal rate cuts are coming in August. To that point, they maintain their view that the easing cycle will begin at the August meeting; however, WF believe policymakers will exercise caution and cut the Selic Rate at a more gradual pace than financial markets are priced for.
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