MNI BCB Preview – Jan 2025: 100bp Hike Seen, Focus On Guidance

Executive Summary

• The BCB looks set to deliver another 100bp Selic rate hike to 13.25% on Wednesday, consistent with its forward guidance, which has indicated that it would raise rates by 100bp at each of the next two meetings.
• Although the BRL has rallied this month, inflation expectations have continued to increase and fiscal pressures remain elevated, pointing to the need to move further into contractionary territory.
• Guidance will be closely monitored again for signals on the depth of the tightening cycle beyond March.

Click to view the full preview: MNI BCB Preview - January 2025.pdf

At the previous meeting in December, the Copom reintroduced forward guidance, indicating that additional hikes of 100bp would come at the next two meetings, in January and March. Since that meeting, IPCA-15 inflation data have come in higher than expected and inflation expectations have deteriorated further, while activity data have shown signs of slowing. Notably, BCB Governor Galipolo and Deputy Governor Guillen have acknowledged the challenging inflation backdrop, but both have indicated that the threshold for deviating from the forward guidance is high.