BCB PRIMER: BCB expected to hike rates by 50bps with eyes on guidance for the remainder of its tightening cycle

BCB RATE DECISION DUE WEDNESDAY 3RD AUGUST 22:30BST/17:30EDT

• The Brazilian Central Bank is expected to hike rates by 50bps, according to 23/29 economists surveyed by Reuters, while one analyst expects a 25bp move and five others expect no move from the BCB. We will be looking for any guidance from the BCB to signal whether the end of the tightening cycle is near for Brazil, or whether they signal a more gradual pace of rate hikes in the meetings ahead. The last meeting in June saw a 50bp rate hike but signalled another hike of 50bps or lower will be necessary in August, despite expectations for a signal to end the normalisation process.

Rate Outlook

• When economists were asked about the rate outlook, 13/19 said it is still tilted to the upside, while four were neutral and the remaining two expected an easing. Analysts at Credit Suisse look for two more 25bp hikes from the BCB after a 50bp move in August. The desk writes "interrupting the tightening cycle in August would be highly risky, given (i) inflation expectations are significantly de-anchored, which could jeopardize the credibility of monetary policy and increase the cost of reducing inflation, and (ii) central banks around the world are trying to reaffirm their credibility and commitment to the objective of maintaining low inflation, which increases the risk of an even more depreciated domestic exchange rate". Morgan Stanley also believes the BCB should not shut the door on another potential hike in September and suggest they remain data dependent.

03 Aug 2022 - 16:00- Fixed IncomeResearch Sheet- Source: Newsquawk