Brazil’s Copom signals rate hike end
Brazil’s central bank is on the brink of ending its tightening cycle, analysts said after the minutes of the most recent monetary policy committee meeting were released on Thursday
Indications that Brazil's monetary tightening cycle has ended
intensified on Thursday, when the central bank underscored its
view that inflation will moderate in the months ahead.
Photo source: Egil
Fujikawa Nes for Connection Consulting
Brazil's monetary policy committee, Copom, suggested a
conditional pause in rate hikes, in minutes of its most recent
meeting, which were released on Thursday.
Copom raised rates 25bp on April 2, to 11%, the second
consecutive hike of a quarter of a point, after six increases
of 50bp each.
"The minutes added an entire new paragraph that we consider
on balance dovish and that reads like the testimonial of a
central bank that wants to justify ending the current cycle
despite the recent acceleration of inflationary pressures,"
said Goldman Sachs analysts.
Inflation hit 0.92% in March, above market expectations,
according to data released this week. That could moderate to
0.83% in April, although food price inflation is likely to
stay, macroeconomists at Itaú said on Thursday.
Barclays, in contrast, said food price rises would moderate
and that inflation could fall to 0.7% in April. That trend,
together with a strengthening exchange rate, could give Copom
"more comfort" to keep rates at 11% at its next meeting in
"Our reading of the minutes of the last monetary policy
meeting is that the Copom is, in fact, signaling a pause, but
conditioned on inflation retracing from the high levels
observed in March," the investment bank said in a note after
the meeting minutes were released.
Not everyone was so convinced. Worse inflation data for
April could push Copom to lift rates again, by 25bp, on May 28,
Goldman Sachs analysts said in a research note on Thursday.
"Given the intensity of the underlying inflationary
pressures, in our assessment, at this juncture BRL
appreciation, rather than supporting ending the cycle in May,
simply reduces the likelihood that the hiking cycle will have
to be extended beyond the May meeting," the bank said.