Primer: Brazil Central Bank rate decision due Wednesday 8th May 2024 at 22:00 BST / 17:00 EDT

Analysis details (14:02)

The Brazilian Central Bank is widely expected to cut its Selic Rate on Wednesday from 10.75%, however analysts are looking for either a 25bp or 50bp cut. 26/45 surveyed by Reuters expect a 25bp cut to 10.50%, although the remaining 19 expect a 50bp cut to 10.25%. 

The prior meeting saw the BCB lower its Selic rate by 50bps but it did tweak its forward guidance, initially the BCB had suggested the Selic rate would be lowered by the same magnitude (of 50bps) at the "next meetings", but in March it changed that to the "next meeting", suggesting the BCB would cut by 50bps in May before then re-assessing the pace of their policy normalisation. However, many analysts expect the central bank to go against their own guidance.  

One of those looking for a 25bp cut at this meeting is JPMorgan, who state they adjusted their "policy rate path to account for the effects of the global financial tightening into the central bank’s reaction function". JPM adds that a new challenge emerged when the Government decided to reduce the 2025 primary target from +0.5% to 0% of GDP. “The combination of both factors probably changes the BCB’s assessment of the balance of risks and, in fact, many COPOM members seem to have acknowledge that possibility, opening the door for breaking last meeting’s forward guidance of a 50bps cut in the next meeting.” The desk says the extent and pace of the cutting cycle will still be heavily dependent on other variables (domestic inflation and GDP growth), but says fiscal and external dynamics will be important in determining the terminal policy rate. Data since the March 20th meeting has seen the unemployment rate rise to 7.9% in March from 7.8% in Feb, while the latest inflation data, the April IGP-M index was hotter than expected, although the IPC mid-month inflation data was softer than forecast. Meanwhile, the latest economic activity data for February was in-line with expectations at 0.4%, but eased from the prior 0.6%.

Looking ahead, the latest central bank poll revealed that analysts continue to see the Selic rate falling to 9.5% by the end of this year, and thereafter to 9.00% by the end of 2025. The folks at JPMorgan, however, see the Selic at 10.00% by the end of this year, achieved by three 25bps rate cuts. 

08 May 2024 - 12:00- Fixed IncomeResearch Sheet- Source: Newsquawk