Brazil Copom: 25bp Selic Cut to 14.25%; Dovish/Cryptic Forward Guidance; Convergence to Target Beyond Relevant Horizon (Ramos)

Research evidence excerpt

Brazil Copom: 25bp Selic Cut to 14.25%; Dovish/Cryptic Forward Guidance; Convergence to Target Beyond Relevant Horizon (Ramos)

Goldman Sachs

further away from the target over the relevant horizon for monetary policy, but with

a dovish caveat that uncertainty around the forecasts remains higher than usual, due

to the lack of clarity about the “trajectory of the conditioning variables”.

4. No explicit Forward Guidance. The Copom reaffirmed “serenity and caution in the

conduction of monetary policy” in the current environment marked by a significant

increase in uncertainty. The Copom stressed that the prolonged period of the Selic

rate at a contractionary level provided evidence about monetary policy transmission

to economic activity (deceleration). However, given “the dynamics of the risks

associated to the evolution of prices”, the magnitude of the calibration cycle will be set

in light of new information while always aiming to assure that inflation converges to

the target.

5. The Copom underscored that the degree of restriction accumulated by monetary

policy allows for different Selic trajectories consistent with inflation convergence to

the target. Furthermore, the Copom states that the Selic path that would deliver

inflation at the target by the end of the current relevant horizon (4Q27) would imply

inflation below the target beyond the relevant horizon at the next meeting (1Q28).

The Copom judges that alternative Selic rate trajectories [alternative/above the

current Focus survey, we believe] ensuring convergence of inflation to the target by

1Q28, are compatible with smoothing variations of macroeconomic aggregates.

6. The conditional inflation forecasts deteriorated over the entire relevant

horizon, moving further away from the 3.0% target.