Next week, the Copom is expected to accelerate the pace of the ongoing monetary tightening due to the deterioration of inflation expectations – 12/06
Since the last Copom meeting, the scenario has worsened for the Central Bank, highlighted by the sharp currency depreciation accompanying increased domestic risk. We anticipate a more hawkish stance, with a 100-basis-point hike in the Selic rate. In our view, the structural shift in long-term investor perception is likely to continue bringing uncertainty and volatility to the market, hindering the anchoring of inflation expectations.
Current economic activity data also fail to ease the Central Bank’s concerns. As a result, there may be another upward revision of the BCB’s output gap estimates, albeit to a lesser extent than in the last Quarterly Inflation Report (RTI).
Lastly, it is worth noting the strengthening of the U.S. dollar over the past 45 days, despite the improvement seen this week—maintaining a challenging and uncertain external environment, primarily due to the economic conditions in the United States.
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