🔆 BUYSIDEBRAZIL | WEEKLY REPORT
Copom reinforces its cautious stance amid a deteriorating inflation outlook, while the US labor market supports expectations of further interest rate hikes – 11/06
✅ The Copom kept the Selic rate unchanged at 13.75% at its November meeting, in line with expectations, and delivered a more hawkish communication compared to the previous decision. The main highlight was the deterioration in the Committee’s assessment of the inflation outlook, as both headline and underlying inflation measures accelerated again, moving above the upper bound of the tolerance range. In addition, the Committee highlighted the further de-anchoring of inflation expectations and the risks associated with the external environment, particularly higher oil prices and the prospect of more restrictive monetary policy in advanced economies.
✅ Although the Copom acknowledged clearer signs of slowing economic activity and moderation in the labor market, we believe these factors remain insufficient to offset the deterioration in the inflation outlook. Against this backdrop, we believe the Committee’s communication confirms the interruption of the monetary easing cycle, reinforcing our expectation that the Selic rate will remain at 13.75% at the next meeting and throughout 2027. The resumption of rate cuts will depend on more consistent evidence of inflation converging toward the target and a sustained improvement in the balance of risks.
✅ In the United States, the labor market showed renewed signs of strengthening in October, easing concerns about a sharper slowdown in employment. Nonfarm payrolls increased by 165,000 jobs, accompanied by upward revisions to previous months, while the unemployment rate declined to 4.1% and wage growth accelerated on a monthly basis. Taken together, these indicators reinforce our expectation of another interest rate hike by the FOMC in December, given persistent inflationary pressures and the resilience of the labor market.
