Following the guidance, COPOM should raise the Selic rate by 100bps while keeping a hawkish communication – 24/01
In the week of the inauguration of the new US president, Trump adopted a more moderate tone than expected, triggering a wave of relief in global assets. Although the political environment did not generate additional pressures, the US economic situation still highlights relevant points of attention, such as the less constructive dynamics of inflation and the still resilient labor market. Thus, we believe the FOMC will opt for a pause in monetary policy conduct at the next decision, as confidence in the disinflationary process – a key point for the start of the rate-cutting cycle – weakened during the period.
Over the past 45 days, the domestic environment has been marked by the maintenance of risk factors monitored by the Central Bank for future inflation, with the exception of an additional unanchoring of expectations in Focus. Although the IPCA-15 surprise was concentrated in airfares, the dynamics of core inflation remained less constructive, with an emphasis on the deterioration of underlying services in recent releases. In expectations, today the projections for the 12-month-ahead IPCA and the 13-24 month moving horizon – a new monitoring metric established by the BC – show that upward revisions are widespread across the categories, although the focus is on the inertial dynamics of the services sector.
Considering this scenario, we believe that COPOM should fulfill the guidance, reaffirming its commitment to converge inflation to the target. We understand that the decision will be unanimous and with the maintenance of the tough tone of recent communications. In terms of textual structure, at the December meeting, the committee anticipated two 100bps hikes for the January and March meetings. However, with the January meeting being the current one, we believe the text will be revised to reflect only a single prospective hike of the same magnitude, without anticipating the expected moves for May.
In this way, the committee fulfills what was previously communicated, maintaining its credibility while remaining more flexible to adjust the trajectory of monetary policy conduct as economic data evolves over the period.
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