All eyes are now focused on the upcoming BCB meeting, after Governor Tombini’s comments at the Senate last week, where he reiterated that the government will do all it can to curb inflation, serving to boost expectations that the COPOM meeting’s decision next week will be to hike the SELIC rate 50bps. Although Governor Tombini and board member Hamilton’s comments from a couple of weeks ago both raised the risk of a 50bps hike, we also believe there are some reasons why the committee could decide to keep the 25bps tightening pace: 1) IPCA inflation is back within the target range, 2) the BCB continues to describe much of the upwards price pressures as “transitory”, 3) the BCB expects inflation to maintain its downward bias over coming months. Accordingly, we think “fair value” is for rates to partially price a 50bps cut, but we don’t think it is “a given”.
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Scotiabank