MNI BCB Preview - Dec 25: Guidance Focus as Policy Shift Nears
Executive Summary
- The Copom is widely expected to leave the Selic rate unchanged at 15.00% for a fourth successive meeting on Wednesday, as it remains cautious amid unanchored inflation expectations.
- However, the very restrictive stance appears to be having the desired effect, with inflation and inflation expectations now declining and economic activity softening.
- As such, focus will be on the forward guidance and any signals that the Copom is opening the door to a rate cut early next year. This could include removing the tightening reference, which could provide immediate optionality to the committee.
Despite the continued moderation of inflation and softening of economic activity, BCB Governor Gabriel Galipolo has pushed back a little on hopes for a near-term interest rate cut following benign IPCA inflation figures, saying recently that he doesn’t see any data that promote a change of direction. The central bank, he said, remains vigilant and cautious, and the new data continue to show what is expected, that monetary policy is working, but very slowly. Galipolo also reiterated that the BCB would like for inflation to converge to the target at a faster pace, and that the policy rate will be kept at the necessary level for the necessary time to hit the inflation target.
Galipolo’s remarks contrast with BCB monetary policy director Nilton David’s slightly softer tone recently, who said that a rate hike is no longer the base case for the BCB. David said that the central bank is waiting for the data to converge with the outlook, noting that if it is successful, then the next move in rates would be down, the question is when. Despite this, David still sounded cautious on the inflation backdrop and said that the job is not yet done. Overall, these latest remarks suggest that the Copom members maintain a cautious stance for now, even as they edge towards considering a start to a monetary policy easing cycle in the near future.
