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Analysis: Economists skeptical about tightening cycle ending this week

Less than 25% of the economic analysts consulted for the Focus survey of market expectations believe that the Central Bank’s Monetary Policy Committee (Copom) will end the monetary tightening cycle this week.

This is what the map of the distribution of market expectations, released by the monetary authority, shows. Less than 25% of economic analysts believe that the Selic, Brazil’s benchmark interest rate, will end the year between 12% and 13% per year.

The Copom will release its monetary policy decision on Wednesday and it is expected to raise the Selic to 12.75% per year from 11.75%, as widely signaled by the policymakers.

The question mark is whether the Copom will continue to raise interest rates in the coming meetings. In March, Central Bank President Roberto Campos Neto said that it would most likely stop at 12.75% per year. But negative surprises in the inflation indexes released since then have made analysts reinforce bets on a deeper tightening.

The map of the distributions of expectations shows that more than 70% of analysts see the Selic between 13% and 14% per year. The median expectation stands at 13.25% per year.

Besides the higher interest rate peak, analysts see a longer monetary tightening cycle. The median interest rate forecast for the end of 2023 rose to 9.25% per year from 9% last week.

The map of the distribution of expectations shows that about 50% of analysts expect an interest rate at the end of 2023 higher than 7.75% per year, with bets up to 9.25% per year. There is a large group, of about 45% of the analysts, who believe that the Selic will exceed 9.25% per year by the end of 2023, with bets as high as 10.75% per year. Around 5% of analysts think that the interest rate will exceed 10.75% per year.

The revision of bets on the size and duration of the monetary tightening cycle is linked to the faster current inflation and higher market expectations for the price index.

Last week, the median of the analysts’ projections for Brazil’s official inflation index IPCA in 2023 rose to 4.1% from 4%. Thus, it is getting further and further away from the target for the year, of 3.25%, which is today the central target of monetary policy decisions.

Only something like 5% of analysts project inflation around the 2023 target, ranging between 2.88% and 3.48%. In March, the Central Bank projected that inflation would reach the 3.25% target, but these calculations are increasingly questioned by private-sector analysts.

Some 45% of analysts project inflation between 3.48% and 4.08%. In addition, 45% of analysts forecast inflation between 4.08% and 4.68%.

Source: Valor International

https://valorinternational.globo.com

3 de May de 2022/by Gelcy Bueno
Tags: Economists, economy
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