Publications

As in the previous two meetings, the Monetary Policy Committee (COPOM) decided to hike the SELIC rate by 50bp to 12.75% (vs. 7.25% two years ago). The remaining uncertainties about the government's ability to deliver a fiscal adjustment amid a turbulent political environment, the ongoing weakening of the Brazilian real (the exchange rate neared R$3 yesterday, accumulating a 32% depreciation in the last twelve months) and very high inflationary pressures (inflation is now above 7.0% and there are no perspectives of significant moderation ahead) are certainly behind the BCB's decision to continue to tight monetary conditions at a 50bp pace in spite of the increasing deceleration of domestic demand.

As widely expected, the monetary authority announced yesterday after financial markets closed in Brazil that policy rates will remain at 11%. We expect the BCB to maintain the SELIC rate at the current level at least until the end of the year. On the one hand, weak growth and the imminence of presidential elections limit the space for any rate hikes. On the other hand, high and increasing inflation leaves practically no room for a monetary easing ahead.