• JP Morgan expect the BCB to keep the policy rate unchanged at 10.50% next week and to deliver unanimously a more hawkish message than last time, given the deterioration of expectations and market conditions since the May meeting. They expect the BCB to signal that the Selic rate will remain on hold until the Board is convinced with the inflation convergence back to the target.
  • JPM believe the COPOM will reinforce a very cautious wording in the statement. Although core CPI inflation has behaved well, inflation expectations have risen, BRL has depreciated substantially, the supply shock from the floods is feeding through and growth remains resilient. Those elements will likely lead the BCB’s own 2025 inflation expectation further away from 3%, suggesting that a Selic rate below 10.5% is inconsistent with the CPI target.
  • Recent data reinforce the view that the balance of risks is tilted to the upside and JPM believe a change in the BCB’s view on this would be unsurprising. Against this backdrop, JPM expect a hawkish BCB to highlight the unequivocal commitment with achieving the inflation target by keeping monetary policy restrictive. This outcome would help to anchor inflation expectations and reduce the risk premia embedded in Brazil’s yield curve.

BRAZIL: JP Morgan Expect Hawkish BCB To Stay On Hold Next Week

Last updated at:Jun-13 14:51By: Keith Gyles
  • JP Morgan expect the BCB to keep the policy rate unchanged at 10.50% next week and to deliver unanimously a more hawkish message than last time, given the deterioration of expectations and market conditions since the May meeting. They expect the BCB to signal that the Selic rate will remain on hold until the Board is convinced with the inflation convergence back to the target.
  • JPM believe the COPOM will reinforce a very cautious wording in the statement. Although core CPI inflation has behaved well, inflation expectations have risen, BRL has depreciated substantially, the supply shock from the floods is feeding through and growth remains resilient. Those elements will likely lead the BCB’s own 2025 inflation expectation further away from 3%, suggesting that a Selic rate below 10.5% is inconsistent with the CPI target.
  • Recent data reinforce the view that the balance of risks is tilted to the upside and JPM believe a change in the BCB’s view on this would be unsurprising. Against this backdrop, JPM expect a hawkish BCB to highlight the unequivocal commitment with achieving the inflation target by keeping monetary policy restrictive. This outcome would help to anchor inflation expectations and reduce the risk premia embedded in Brazil’s yield curve.

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