Risk or Base Case Scenario?
The Minutes of the COPOM meeting disclosed on Tuesday morning reflect the decision to alter the forward guidance, maintaining a “conditional commitment” to cut the SELIC rate by 50 basis points only at the meeting scheduled for May, thus leaving doubt regarding the reductions at subsequent meetings. We stress that this change in guidance led to Minutes unequivocally more hawkish, leaving the possibility – but not certainty – of a slower pace of monetary easing at the end of the first half of the year, sooner than the current consensus among analysts.
Broadly speaking, the Committee now notes that although the baseline scenario remains unchanged, heightened uncertainties exist both regarding the external and domestic environments that require more flexible monetary policy to adjust to potential changes. In this regard, the Central Bank believes that the cost of committing, even conditionally, to a determined magnitude of reducing the basic interest rate has increased in relation to the benefit of the signaling, namely less interest rate volatility.
This said, it is necessary to understand to what extent the COPOM attributes such external and internal uncertainty.
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