BC will maintain rigid posture will undermine hopes of Selic reduction – 03/17/2023 – Market

Brazil’s Central Bank will persist in its aggressive stance next week, leaving the Selic rate at the highest level in six years, while likely dashing hopes for any imminent easing of monetary policy, economists predicted in a survey by the Reuters.

It would be the fifth consecutive meeting in which the BC would keep the Selic at 13.75%, after interrupting an aggressive cycle of interest rate hikes. But upside domestic risks to inflation persist, and recent troubles at some smaller US banks are making the global outlook more challenging.

In the communiqué that will accompany its decision for next Wednesday, the Monetary Policy Committee (Copom) should reiterate a cautious view on Brazil’s public accounts, pending the final form of the new fiscal framework planned by the government.

All 30 economists in the March 13-16 survey said they expected the Selic rate to stay at 13.75%, a restrictive level that President Luiz Inacio Lula da Silva has criticized, claiming it is harmful to the economy.

“This is a moment of caution and to look at the government’s efforts to remain mobilized towards fiscal responsibility and the good management of expenses and revenues”, said Julio Hegedus, chief economist at Mirae Asset.

Some analysts cited market turmoil over banking issues as a factor that could soften the central bank’s stance at a time of growing speculation that the US banking sector could force the Federal Reserve to ease its tightening.

However, policymakers in Brazil and other emerging market economies would be reluctant to follow any potential move by the Fed to address concerns that so far have been mostly limited to a few smaller US creditors and Switzerland’s Credit Suisse.

The central bank will likely want to avoid fueling inflationary pressures by exacerbating the real’s recent devaluation with any unexpected measures, given the disconnect between the domestic economy and concerns about banks abroad.

The expectation is that the autarchy will prepare the ground for a longer period of high interest rates, and now most respondents questioned about their perspectives for the third quarter project the Selic at 13.75%, compared to 13.50% last month .

A majority of 14 out of 25 economists saw no change in the Selic until at least June, compared with 11 out of 25 in a February poll’s final count. The consensus estimate for the fourth quarter still calls for a cut, but the end-of-quarter rate was 0.25 percentage point higher at 12.75%.