BRAZIL CENTRAL BANK PRIMER: The BCB rate decision is due at 22:00BST/17:00EDT Wednesday 15th June 2022

Analysis details (12:35)

EXPECTATIONS: Brazil’s Central Bank is expected to hike rates by 50bps taking its key rate to 13.25% from 12.75%, while language on rate guidance will also be eyed, which is expected to show no more hikes through year-end. Although the majority expect a 50bp move from the BCB, 5/30 analysts surveyed by Reuters see a larger hike, with four expecting a 75bp move, and one expecting an even bigger 100bp move. The survey saw that most analysts expect the rate to remain at 13.25% through year-end which will help ease concerns around the Presidential Election in October before rates are then expected to fall as inflation cools. Although it is not a certainty and some do express a risk of potential further rate hikes, the Reuters survey found rates are expected to start easing in 2023. It is also worth highlighting that the BCB will be taking place after the Federal Reserve, where there is a real risk of a more hawkish pivot and opting for a 75bps move in wake of the hot May US CPI data, which sparked several respected articles (WSJ, BBG, CNBC) noting that a 75bp hike is likely from the Fed today, which could perhaps push the BCB into taking a more hawkish approach. 

INFLATION: With inflation one of the main risks for global central banking, Brazil's May IPCA-15 data showed prices rising by 0.6% M/M (exp. 0.5%), while the annual rate rose to 12.2% Y/Y (exp. 12.0%, prev. 12.0%). Pantheon Macroeconomics noted that Brazil’s inflation dynamics continued to deteriorate. “Upside risks persist due mostly to worsening supply chains, high commodity prices, particularly fuel, and a relatively resilient domestic recovery, following the Omicron wave,” but added, “that said, upside pressures in some key components are no longer increasing.” PM expects inflation will ease in the months ahead, to around 8.5% Y/Y by the end of 2022 on the back of favourable base effects. “We think that the headline rate will hover around its current level over the next few months, but that a gradual headline inflation downtrend will emerge over Q3,” it says, “the COPOM probably will hike by 50bps to bring expectations down, but will recognise that further rate increases will put the economy under severe strain". 

15 Jun 2022 - 12:35- Fixed IncomeData- Source: Newsquawk