Central Bank adopts dovish tone in COPOM statement, signaling potential end to tightening cycle – 05/09
In a unanimous decision, the Central Bank raised the interest rate to 14.75% per year, highlighting increased uncertainty in the global economy. Although the magnitude of the hike was widely expected by the market, the focus of the COPOM statement was the softer tone adopted by the committee. In the text, the inflation risk balance became symmetric (for the first time since the beginning of the cycle, even though the term was not used explicitly). Additionally, members signaled that monetary policy should remain at a restrictive level, replacing the phrase “more contractionary” with “significantly contractionary for a prolonged period,” suggesting a possible preference for stability over further hikes. Combined with sections referencing the advanced stage of the tightening cycle and the lagged effects yet to be observed, we believe the probability of a 25bps hike at the June meeting has decreased significantly. Accordingly, we revise our terminal interest rate forecast to 14.75% (previously 15%), with this level maintained until Q2 2026.
In current inflation, April IPCA maintains negative qualitative trend with increases in more sensitive metrics. April’s IPCA rose 0.43% MoM, above our forecast (0.41%) and the market median (0.42%). The upward pressure was concentrated in the industrial goods and services components, with the average core inflation measures rising 0.51% MoM. For the Central Bank, the current scenario remains less constructive, although a less favorable inflation trend was already expected through the beginning of Q3.
Finally, in the United States, FOMC holds interest rate, emphasizing increased inflation risks from trade tariffs. The statement brought few changes but reinforced the solid level of economic activity, and emphasized rising uncertainty in the global outlook, with increased upside risks to inflation and unemployment. In Jerome Powell’s press conference, the chairman underscored that monetary policy is well-positioned and aligned with the need for caution until greater clarity on economic data is achieved. As such, we maintain our scenario of only one rate cut in the September FOMC meeting, ending the year at 4.25%.
For more details, please check our Weekly Report 112.
