Harsher communication and a significant rise in the inflation projections from the Central Bank’s model suggest a more aggressive rate hike cycle – 09/20
In a week marked by monetary policy decisions, the committee acknowledged the external environment as challenging. The COPOM’s reading of the FOMC decision was that the current slowdown in U.S. economic activity and inflation still raises doubts about the Fed’s stance, keeping the external environment complex. In the domestic scenario, the greater dynamism of economic activity led the Central Bank to revise the output gap into positive territory. In terms of modeling, the Central Bank’s inflation projections stood at 3.5% in the relevant horizon of March 2026, prompting the committee to raise the interest rate by 25bps to 10.75%. Although it remains without providing guidance, the Central Bank’s harsher communication indicated that the cycle should be larger than what the market expectations had priced in. Given this scenario, we revised our Selic forecast for 2024 from 10.50% to 11.75%, with two more hikes of 50bps in the November and December meetings, followed by a 25bps increase at the first meeting in 2025, reaching a level of 12%. It is important to note that this scenario adjustment only considers the information obtained from the COPOM statement. Therefore, we do not rule out upward revisions to the Selic cycle depending on the assumptions used in the base scenario and their respective impacts on other macroeconomic variables.
For more information, please check our Weekly Report 82.
