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Brazil Monetary Policy May 2023

Brazil: COPOM holds fire for sixth consecutive meeting in May

At its 2–3 May meeting, the Monetary Policy Committee (COPOM) of Brazil’s Central Bank (BCB) decided to once again leave the benchmark SELIC rate unchanged at 13.75%. The unanimous decision, which had been priced in by markets, was the sixth consecutive hold since September 2022.

The decision to hold was chiefly driven by the continued moderation of both headline and core inflation through March. With regard to inflation expectations, the COPOM’s baseline headline inflation projections were left unchanged at 5.8% and 3.6% for 2023 and 2024, respectively. With regard to activity, the Bank noted that, while the labor market had remained resilient, domestic activity had cooled, as expected. Additionally, the Bank noted that continued elevated uncertainty and volatility amid banking sector turmoil abroad called for caution.

While the Bank did not provide any hints regarding future policy moves, the tone of the communiqué was more stern. Against political pressures to lower interest rates, the Bank stated that risks to the inflation outlook remained in both directions; it affirmed it would not hesitate to resume the tightening cycle if inflation did not continue receding as expected. However, the Bank noted that this scenario was less likely and that it saw a greater probability of interest rates remaining elevated for some time. The Committee added that “it will persevere until it consolidates not only the disinflation process but also the anchoring of expectations around its targets”.

Meanwhile, virtually all of our panelists see the benchmark SELIC rate being cut before the end of 2023.

The next monetary policy meeting is scheduled for 20–21 June.

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