{"id":91694,"date":"2024-11-04T13:04:07","date_gmt":"2024-11-04T16:04:07","guid":{"rendered":"https:\/\/murray.adv.br\/?p=91694"},"modified":"2024-11-04T13:04:12","modified_gmt":"2024-11-04T16:04:12","slug":"brazil-set-to-speed-up-interest-rate-hikes","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/","title":{"rendered":"Brazil set to speed up interest rate hikes"},"content":{"rendered":"\n
Market anticipates policy rate to hit 12.5% per year by mid-2025; some forecasts suggest a return to 13%<\/em><\/strong><\/h6>\n\n\n\n

<\/p>\n\n\n\n

<\/p>\n\n\n\n

<\/p>\n\n\n\n

<\/p>\n\n\n\n

<\/p>\n\n\n\n

11\/04\/2024 <\/p>\n\n\n\n

\n\n\n\n

Amid a deteriorating economic outlook and tighter financial conditions since September, the Central Bank\u2019s Monetary Policy Committee (COPOM) is expected to take a more aggressive stance in its current tightening cycle. An acceleration of the Selic policy rate hike to 50 basis points is widely anticipated by the financial market, which has revised its expectations for the base interest rate upward. However, even with this adjustment, inflation is projected to drift further from the 3% target within the relevant horizon.<\/p>\n\n\n\n

Of the 125 financial institutions surveyed by Valor, only three expect a smaller hike of 25 basis points. The rest anticipate that the COPOM will act decisively, raising the Selic rate by 50 basis points to 11.25% per year in response to the significant deterioration in economic conditions. Contributing factors include the Brazilian real\u2019s depreciation to R$5.90 per dollar, worsening inflation data, a persistently heated labor market, and increasingly pessimistic inflation expectations as reported in the Focus Bulletin and the breakeven inflation rate market.<\/p>\n\n\n\n

The market sentiment is reflected in asset prices. On the yield curve, the probability of a 50-basis-point hike stands at 74% versus a 26% likelihood of a 75-basis-point hike. In the digital options market, the chances of a 50-basis-point increase were at 86% by Friday\u2019s close, while the probability of a 75-basis-point increase stood at 10%.<\/p>\n\n\n\n

Ita\u00fa Unibanco\u2019s superintendent of economic research, Fernando Gon\u00e7alves, cites notable shifts since September as justification for a quicker pace of tightening, especially the currency devaluation. At its last meeting, the Central Bank modeled scenarios with the FX rate at R$5.60 per dollar, but the updated FX rate for this meeting is closer to R$5.75.<\/p>\n\n\n\n

\u201cThis brings an important inflationary push. We\u2019re also observing a tightening labor market, inflation expectations above the target, and lingering uncertainty about the U.S. election outcome, which could impact U.S. interest rates. All of this signals a need for higher rates in Brazil,\u201d Mr. Gon\u00e7alves explained.<\/p>\n\n\n\n

The market\u2019s upward revision of Selic rate expectations began following the release of the COPOM\u2019s third-quarter Inflation Report, which projected inflation above target through 2026 and into early 2027. Many in the market interpreted this as an indication that interest rates must rise even further to achieve the 3% target.<\/p>\n\n\n\n

According to XP Asset Management\u2019s chief economist Fernando Genta, to bring inflation back to 3% within the relevant timeframe, the COPOM would likely need to raise the Selic rate to around 15% in the current tightening cycle. Although Mr. Genta\u2019s official projection is for a lower base rate of about 13% by mid-next year, he believes any effective tightening must counter not only the effects of expansionary fiscal policy but also the impact of the recent rate-cutting cycle, which took the Selic from a peak of 13.75% to 10.5% between August 2023 and May this year. \u201cI don\u2019t think 15% is excessive. The challenge is how much disinflation we need to implement in an economy that\u2019s growing beyond its potential,\u201d Mr. Genta, a former assistant secretary in the Economy Ministry, remarked.<\/p>\n\n\n\n

Mr. Genta anticipates that the Central Bank will likely pursue a more gradual path toward reaching the inflation target, favoring a moderated tightening cycle that brings the Selic to 13%, with a series of 50-basis-point hikes, beginning with this week\u2019s meeting. \u201cGiven the data, I believe the Central Bank could move even faster, but signals from its directors suggest otherwise,\u201d he notes.<\/p>\n\n\n\n

Central Bank officials recently attended meetings in Washington during the International Monetary Fund (IMF) and World Bank annual gatherings, where market participants gauged that the threshold for a sharper 75-basis-point hike remains high. This perception has reinforced expectations of a 50-basis-point hike cycle.<\/p>\n\n\n\n

Despite these expectations, the yield curve is pricing in an extended tightening cycle. As of Friday, the market projected the Selic rate would reach between 13.75% and 14% in 2025, essentially returning it to levels seen until 2023, when the Central Bank initiated the easing cycle.<\/p>\n\n\n\n

Considering current inflation trends and recent currency pressures, Barclays\u2019s chief economist for Brazil, Roberto Secemski, sees \u201ca clear upside risk\u201d to his projected 12% peak for the Selic rate by the cycle\u2019s end.<\/p>\n\n\n\n

However, a slight reduction in fiscal stimulus, emerging signs of potential economic slowing, and easing wage pressure from recent employment data have led Barclays to maintain its current outlook of two more 50-basis-point hikes followed by a final 25-basis-point hike in January.<\/p>\n\n\n\n

Mr. Secemski is watching closely for the communication strategy the COPOM will use this week, particularly in a climate of heightened volatility from domestic fiscal risks and the upcoming U.S. election. \u201cThe COPOM will have to decide whether to leave its guidance open, as it did in September, to preserve credibility or indicate an intention to continue the current pace for the next decision,\u201d he explains.<\/p>\n\n\n\n

Mr. Secemski notes that these options carry trade-offs. If the COPOM avoids guidance on its next steps, the yield curve could respond by pricing in a possible acceleration in December. Conversely, if the committee signals a commitment to 50-basis-point hikes in December, this may cap the market\u2019s expectations, which could be seen as restrictive and counterproductive as the Central Bank seeks to bolster credibility.<\/p>\n\n\n\n

Mr. Secemski\u2019s baseline scenario is that the COPOM will likely opt for open-ended guidance, \u201cespecially given domestic fiscal uncertainty and the approaching U.S. elections.\u201d The Barclays economist believes the Central Bank will likely prioritize flexible communication rather than locking itself into a specific future course.<\/p>\n\n\n\n

Luiz Felipe Maciel, chief economist for Brazil at Bahia Asset Management, expects the tone of the Central Bank\u2019s communication to remain \u201ctough.\u201d He anticipates that the COPOM\u2019s inflation projections will indicate further deterioration, even with the elevated interest rates factored into the Focus Bulletin.<\/p>\n\n\n\n

Mr. Maciel does not foresee a meaningful reduction in fiscal stimulus in 2025, which he believes will keep the economy heated and inflation under pressure. \u201cSome fiscal stimuli directly benefit those more likely to spend. There\u2019s fiscal injection happening, and states and municipalities are also increasing their expenditures,\u201d he says. He notes that if the government implements significant fiscal adjustments, it could alleviate pressure on the Central Bank, marking \u201cthe first concrete signal since the administration began that spending could indeed decrease.\u201d<\/p>\n\n\n\n

Given the current economic environment, Mr. Maciel sees the risk tilted toward even higher interest rates than Bahia Asset\u2019s 13% projection. \u201cWith unemployment heading toward 6%, everyone will need to revise their inflation forecasts,\u201d he adds.<\/p>\n\n\n\n

While he initially disagreed with the Central Bank\u2019s decision to resume tightening in September, Andr\u00e9 Leite, chief investment officer at TAG Investimentos, now projects that the Selic rate will reach 12.5% by the end of the cycle. According to the Central Bank\u2019s model, this level should bring inflation down to 3.15%, provided rates remain high for an extended period. However, Mr. Leite expects political pressure on the Central Bank to intensify by the second half of next year, with interest rate cuts beginning in September and bringing the Selic to 10% by 2026.<\/p>\n\n\n\n

\u201cThis 13.5% priced in by the market would likely bring inflation closer to 2% rather than 3% over the relevant horizon. Even with our projection of 12.5%, maintaining that rate for 18 months seems unsustainable given the level of pressure to reduce rates,\u201d says Mr. Leite. \u201cWe expect the Central Bank to begin rate cuts by September 2025, continuing down to 10% by 2026. We believe the decision to start cutting will be driven more by political than technical considerations.\u201d<\/p>\n\n\n\n

From a communication perspective, Mr. Leite suggests that \u201cthe ball is in the fiscal court.\u201d He describes the upcoming meeting as \u201cmore about buying time than making a significant shift in monetary policy.\u201d<\/p>\n\n\n\n

*By Gabriel Caldeira, Gabriel Roca, Victor Rezende \u2014 S\u00e3o Paulo<\/p>\n\n\n\n

Source: Valor International<\/p>\n\n\n\n

\nhttps:\/\/valorinternational.globo.com\/\n<\/div><\/figure>\n","protected":false},"excerpt":{"rendered":"

Market anticipates policy rate to hit 12.5% per year by mid-2025; some forecasts suggest a return to 13% 11\/04\/2024 Amid a deteriorating economic outlook and tighter financial conditions since September, the Central Bank\u2019s Monetary Policy Committee (COPOM) is expected to take a more aggressive stance in its current tightening cycle. An acceleration of the Selic […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8106],"tags":[25598],"class_list":["post-91694","post","type-post","status-publish","format-standard","hentry","category-murray-news","tag-brazil-set-to-speed-up-interest-rate-hikes"],"yoast_head":"\nBrazil set to speed up interest rate hikes - Murray Advogados<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Brazil set to speed up interest rate hikes - Murray Advogados\" \/>\n<meta property=\"og:description\" content=\"Market anticipates policy rate to hit 12.5% per year by mid-2025; some forecasts suggest a return to 13% 11\/04\/2024 Amid a deteriorating economic outlook and tighter financial conditions since September, the Central Bank\u2019s Monetary Policy Committee (COPOM) is expected to take a more aggressive stance in its current tightening cycle. An acceleration of the Selic […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/\" \/>\n<meta property=\"og:site_name\" content=\"Murray Advogados\" \/>\n<meta property=\"article:published_time\" content=\"2024-11-04T16:04:07+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-11-04T16:04:12+00:00\" \/>\n<meta name=\"author\" content=\"Gelcy Bueno\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Gelcy Bueno\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"8 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/\"},\"author\":{\"name\":\"Gelcy Bueno\",\"@id\":\"https:\/\/murray.adv.br\/en\/#\/schema\/person\/dd0d0bea46c2436124555d18c1a0d52e\"},\"headline\":\"Brazil set to speed up interest rate hikes\",\"datePublished\":\"2024-11-04T16:04:07+00:00\",\"dateModified\":\"2024-11-04T16:04:12+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/\"},\"wordCount\":1298,\"keywords\":[\"Brazil set to speed up interest rate hikes\"],\"articleSection\":[\"Murray News\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/\",\"url\":\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/\",\"name\":\"Brazil set to speed up interest rate hikes - Murray Advogados\",\"isPartOf\":{\"@id\":\"https:\/\/murray.adv.br\/en\/#website\"},\"datePublished\":\"2024-11-04T16:04:07+00:00\",\"dateModified\":\"2024-11-04T16:04:12+00:00\",\"author\":{\"@id\":\"https:\/\/murray.adv.br\/en\/#\/schema\/person\/dd0d0bea46c2436124555d18c1a0d52e\"},\"breadcrumb\":{\"@id\":\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"In\u00edcio\",\"item\":\"https:\/\/murray.adv.br\/en\/home\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Brazil set to speed up interest rate hikes\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/murray.adv.br\/en\/#website\",\"url\":\"https:\/\/murray.adv.br\/en\/\",\"name\":\"Murray Advogados\",\"description\":\"PLG International Lawyers\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/murray.adv.br\/en\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/murray.adv.br\/en\/#\/schema\/person\/dd0d0bea46c2436124555d18c1a0d52e\",\"name\":\"Gelcy Bueno\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/murray.adv.br\/en\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/1ef2acfe966d6deacdeccd2a24ea89192c41fd05fc60e57b79021358a47f5641?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/1ef2acfe966d6deacdeccd2a24ea89192c41fd05fc60e57b79021358a47f5641?s=96&d=mm&r=g\",\"caption\":\"Gelcy Bueno\"},\"url\":\"https:\/\/murray.adv.br\/en\/author\/news\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Brazil set to speed up interest rate hikes - Murray Advogados","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/","og_locale":"en_US","og_type":"article","og_title":"Brazil set to speed up interest rate hikes - Murray Advogados","og_description":"Market anticipates policy rate to hit 12.5% per year by mid-2025; some forecasts suggest a return to 13% 11\/04\/2024 Amid a deteriorating economic outlook and tighter financial conditions since September, the Central Bank\u2019s Monetary Policy Committee (COPOM) is expected to take a more aggressive stance in its current tightening cycle. An acceleration of the Selic […]","og_url":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/","og_site_name":"Murray Advogados","article_published_time":"2024-11-04T16:04:07+00:00","article_modified_time":"2024-11-04T16:04:12+00:00","author":"Gelcy Bueno","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Gelcy Bueno","Est. reading time":"8 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/#article","isPartOf":{"@id":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/"},"author":{"name":"Gelcy Bueno","@id":"https:\/\/murray.adv.br\/en\/#\/schema\/person\/dd0d0bea46c2436124555d18c1a0d52e"},"headline":"Brazil set to speed up interest rate hikes","datePublished":"2024-11-04T16:04:07+00:00","dateModified":"2024-11-04T16:04:12+00:00","mainEntityOfPage":{"@id":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/"},"wordCount":1298,"keywords":["Brazil set to speed up interest rate hikes"],"articleSection":["Murray News"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/","url":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/","name":"Brazil set to speed up interest rate hikes - Murray Advogados","isPartOf":{"@id":"https:\/\/murray.adv.br\/en\/#website"},"datePublished":"2024-11-04T16:04:07+00:00","dateModified":"2024-11-04T16:04:12+00:00","author":{"@id":"https:\/\/murray.adv.br\/en\/#\/schema\/person\/dd0d0bea46c2436124555d18c1a0d52e"},"breadcrumb":{"@id":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/murray.adv.br\/en\/brazil-set-to-speed-up-interest-rate-hikes\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"In\u00edcio","item":"https:\/\/murray.adv.br\/en\/home\/"},{"@type":"ListItem","position":2,"name":"Brazil set to speed up interest rate hikes"}]},{"@type":"WebSite","@id":"https:\/\/murray.adv.br\/en\/#website","url":"https:\/\/murray.adv.br\/en\/","name":"Murray Advogados","description":"PLG International Lawyers","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/murray.adv.br\/en\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/murray.adv.br\/en\/#\/schema\/person\/dd0d0bea46c2436124555d18c1a0d52e","name":"Gelcy Bueno","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/murray.adv.br\/en\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/1ef2acfe966d6deacdeccd2a24ea89192c41fd05fc60e57b79021358a47f5641?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/1ef2acfe966d6deacdeccd2a24ea89192c41fd05fc60e57b79021358a47f5641?s=96&d=mm&r=g","caption":"Gelcy Bueno"},"url":"https:\/\/murray.adv.br\/en\/author\/news\/"}]}},"_links":{"self":[{"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/posts\/91694","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/comments?post=91694"}],"version-history":[{"count":1,"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/posts\/91694\/revisions"}],"predecessor-version":[{"id":91695,"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/posts\/91694\/revisions\/91695"}],"wp:attachment":[{"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/media?parent=91694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/categories?post=91694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/murray.adv.br\/en\/wp-json\/wp\/v2\/tags?post=91694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}