{"id":93322,"date":"2025-03-17T12:47:54","date_gmt":"2025-03-17T15:47:54","guid":{"rendered":"https:\/\/murray.adv.br\/?p=93322"},"modified":"2025-03-17T12:47:56","modified_gmt":"2025-03-17T15:47:56","slug":"brazilian-central-banks-guidance-on-future-moves-splits-market","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/brazilian-central-banks-guidance-on-future-moves-splits-market\/","title":{"rendered":"Brazilian Central Bank\u2019s guidance on future moves splits market"},"content":{"rendered":"\n
Economists\u2019 predictions for the Selic rate at the end of the current monetary tightening range from 14.25% to 16.25%; the median forecast points to 15% in Q1<\/strong><\/em><\/h6>\n\n\n\n

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03\/17\/2025 <\/p>\n\n\n\n

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With the Central Bank\u2019s Monetary Policy Committee (COPOM) widely expected to raise the benchmark Selic rate by 100 basis points, the market\u2019s focus is now on any signals the committee might provide regarding the next steps in monetary policy. The prevailing view is that the tightening will continue into the second quarter. However, the use of forward guidance has sparked debate among market participants, as some expect clearer communication on the interest rate trajectory starting in May.<\/p>\n\n\n\n

The argument against tying the COPOM\u2019s hands comes from the broader economic landscape. Since January, economic activity data has been weaker than expected, while inflation remains persistently above target with an unfavorable composition, given rising service prices and core inflation pressures. Additionally, the international environment has become significantly more unstable, increasing asset price volatility and uncertainty among economic agents.<\/p>\n\n\n\n

\u201cThere\u2019s no point in providing signals,\u201d said Santander economist, Marco Antonio Caruso. \u201cWe believe the COPOM should not make any strong statements about its next moves. Decisions should be based on inflation convergence, without giving hints about the direction.\u201d<\/p>\n\n\n\n

In December, when the COPOM announced a \u201cshock\u201d rate hike to stabilize markets and curb the depreciation of domestic assets, it signaled two consecutive increases of 100 basis points in January and March. This has heightened market expectations, as economic forecasts vary significantly regarding future steps.<\/p>\n\n\n\n

Market projections<\/strong><\/p>\n\n\n\n

Among 125 financial institutions and consultancies surveyed by Valor, all anticipate a 100-basis-point hike in the Selic rate on Wednesday (19), bringing it to 14.25%. However, when asked about the expected level at the end of the tightening cycle, projections range from 14.25% to 16.25%. This disparity was anticipated by the Central Bank itself. At an event in Rio de Janeiro in February, Central Bank Chair Gabriel Gal\u00edpolo noted that as the forward guidance period neared its end, \u201cthe boat would rock a little more.\u201d<\/p>\n\n\n\n

\u201cWe are in a period where the Central Bank is data-dependent. There is a need to assess whether the economic slowdown is temporary or if we are entering a more sustained deceleration. Given the current magnitude of interest rates, some slowdown was expected. We are seeing it happen, but it remains a minor factor amid ongoing uncertainties and risks,\u201d said Ariane Benedito, chief economist at PicPay, whose forecast points to a Selic rate of 15% in May.<\/p>\n\n\n\n

Given this more unstable backdrop, Ms. Benedito sees potential benefits in the Central Bank providing forward guidance for the next meeting. \u201cIdeally, that would be the best approach in our view. However, we believe it is highly unlikely that the Central Bank will take this route given the current conditions. External uncertainty is too high and will weigh on the risk assessment, which is why we expect future steps to remain data-dependent and conditional on evolving circumstances.\u201d<\/p>\n\n\n\n

In its January decision, the COPOM maintained an inflation risk assessment with an upward bias, but there is now market uncertainty about whether this stance will be reiterated in the upcoming statement. Key concerns among market participants include rising external uncertainty\u2014driven by the trade war initiated by U.S. President Donald Trump\u2014and weaker-than-expected economic activity data since the last meeting in January.<\/p>\n\n\n\n

Alexandre Bassoli, chief economist at Apex Capital, expects a softer communication from the COPOM. \u201cBased on public statements from policymakers, my impression is that they now see a more balanced risk assessment,\u201d he said. In his view, recent signs of economic cooling should be emphasized by the committee. However, he believes the slowdown will be \u201cgradual\u201d and points out that \u201cthere are no signs of an economic collapse,\u201d even as domestic inflation remains a challenge.<\/p>\n\n\n\n

\u201cThe trajectory of inflation expectations has been a major challenge,\u201d Mr. Bassoli noted. In Valor\u2019s survey, the median forecast for the IPCA official inflation rate this year increased from 5.4% in January to 5.6%, while the median inflation estimate for 2026 rose from 4.2% to 4.4%, approaching the upper limit of the target range. \u201cWhat seems most likely to me is that, over time, there will be disappointment with the inflation trajectory,\u201d he added.<\/p>\n\n\n\n

Meanwhile, Marcela Rocha, chief economist at Principal Asset Management in Brazil, expects the COPOM to maintain a hawkish stance, given persistent inflationary pressures and a gradual loss of economic momentum, which she considers a natural outcome of the monetary tightening already in place. \u201cThe COPOM will not change its risk assessment and will keep the upward bias for inflation. Despite weaker economic activity data and a stronger exchange rate, the Central Bank\u2019s projections and the broader economic outlook still suggest upside risks.\u201d<\/p>\n\n\n\n

Inflation de-anchoring<\/strong><\/p>\n\n\n\n

Taking into account recent shifts in exchange rates, oil prices, and inflation expectations from the Central Bank\u2019s Focus survey, Ms. Rocha estimates that the COPOM\u2019s inflation projection for its relevant horizon (Q3 2026) should decline from 4% to 3.7%. Given this outlook, she believes the COPOM \u201ccannot be complacent\u201d with the extent of inflation de-anchoring suggested by both market expectations and its own forecasts. This, she argues, could lead the Central Bank to signal the continuation of monetary tightening in upcoming meetings.<\/p>\n\n\n\n

\u201cIf communication is too open, with too much flexibility, it could have a counterproductive effect for the COPOM,\u201d Ms. Rocha warned. She argued that if the Central Bank does not signal further rate hikes, it could send a message that it is unconcerned about the current de-anchoring of inflation expectations and is not committed to restoring credibility. \u201cThe moment calls for the Central Bank to indicate that this next Selic increase will not be the last,\u201d she said.<\/p>\n\n\n\n

Mr. Caruso from Santander, who also expects the COPOM\u2019s inflation projection for the relevant horizon to fall to between 3.7% and 3.8%, attributed this mainly to exchange rate appreciation. However, he stressed that the gap to the 3% target \u201cwill still be significant.\u201d \u201cThis opens the discussion for a slowdown in the pace of hikes, which would be reasonable if we assume the exchange rate remains at current levels,\u201d he said. \u201cThe challenge lies in inflation expectations.\u201d<\/p>\n\n\n\n

While also emphasizing inflationary pressures and the de-anchoring of expectations, Ra\u00ed Chicoli, chief economist at Citrino Gest\u00e3o de Recursos, believes rising uncertainties should carry greater weight. \u201cIt is becoming very difficult for the COPOM to provide forward guidance at this stage. Most likely, they will try to maintain communication without committing to a specific next step. That doesn\u2019t mean the COPOM will stop raising rates.\u201d<\/p>\n\n\n\n

As long as the committee\u2019s projections continue to indicate the need for further rate adjustments, Mr. Chicoli does not expect the Central Bank to end the tightening cycle now. His forecast places the Selic rate at 15.25%, but given the high level of uncertainty, he sees little benefit in making a firm commitment on future moves. \u201cThere\u2019s no way to predict what will happen with the U.S. economy or Brazil\u2019s economy in the meantime,\u201d he noted.<\/p>\n\n\n\n

Regarding the COPOM\u2019s statement, Mr. Chicoli believes it may acknowledge that growth was weaker than expected in the final quarter of last year and that the committee\u2019s expectations may have been slightly more optimistic. \u201cThe communication will likely be more concise when addressing the slightly weaker activity, and this will be elaborated further in the meeting minutes. But I don\u2019t think the tone will change much from January. Signs of a slowdown are still in their early stages, and it\u2019s too soon to say there is a clear shift in trend,\u201d he argued.<\/p>\n\n\n\n

*By\u00a0Gabriel Caldeira\u00a0e\u00a0Victor Rezende\u00a0\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":"

Economists\u2019 predictions for the Selic rate at the end of the current monetary tightening range from 14.25% to 16.25%; the median forecast points to 15% in Q1 03\/17\/2025 With the Central Bank\u2019s Monetary Policy Committee (COPOM) widely expected to raise the benchmark Selic rate by 100 basis points, the market\u2019s focus is now on any […]<\/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":[25957],"class_list":["post-93322","post","type-post","status-publish","format-standard","hentry","category-murray-news","tag-brazilian-central-banks-guidance"],"yoast_head":"\nBrazilian Central Bank\u2019s guidance on future moves splits market - 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\/brazilian-central-banks-guidance-on-future-moves-splits-market\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Brazilian Central Bank\u2019s guidance on future moves splits market - 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