Weekly Report 138
Copom acknowledges improvement in inflation but retains hawkish passages leaving the market split on the timing of rate cuts – November 7
✅ The Copom kept the Selic rate unchanged at 15% with a slightly more dovish statement on the margin though still firmly contractionary. On the inflation front the text explicitly acknowledged the improvement in both headline and core measures in recent releases but cautioned that both remain above target. The statement also incorporated a lower inflation projection for the policy relevant horizon at 3.3% in 2Q27 from 3.4% reinforcing a gradual improvement in the inflation outlook.
✅ In terms of communication the main change appeared in the final paragraph where the Copom removed the previous conditional phrasing “assessing whether maintaining the current level of the policy rate for a sufficiently long period will be enough” and replaced it with a more assertive statement “the Committee assesses that maintaining the current level of the policy rate for a sufficiently long period is enough to ensure convergence of inflation to the target.” This subtle yet relevant shift suggests greater confidence in the effectiveness of monetary policy and reinforces the perception that the Central Bank believes the elevated Selic is already delivering the intended effects.
✅ Nevertheless the Copom retained all of its hawkish elements including the phrase “for a sufficiently long period” and the warning that it “will not hesitate to resume the adjustment cycle.” This contributed to an adjustment in market expectations with some participants pushing back the expected start of rate cuts from January to March. However we believe the downward revision in inflation projections and the acknowledgment of improved current metrics provide room for further anchoring of expectations through the January meeting.
✅ With the ongoing US government shutdown private indicators have gained even more relevance as a gauge of the economy and labor market conditions. The October ADP report showed a moderate recovery in private employment with a net creation of 42,000 jobs. The ISM Services Index showed a stronger rebound rising from 50.0 to 52.4 and exiting contraction territory. Meanwhile the shutdown remains unresolved and is increasingly disrupting the functioning of the economy. Additionally the paralysis continues to hinder the collection and release of economic statistics adding uncertainty to the Federal Reserve’s assessment of the economic outlook.
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