The Brazilian central bank: will continue to maintain a cautious and relaxed stance
2024-01-31
■ The Central Bank of Brazil (BCB) is expected to lower its policy interest rate by 0.50% for the fifth consecutive time on January 31st.
■ It is expected that the loose stance will continue, but if the inflation rate remains within the central bank's target range, the magnitude of interest rate cuts will be reduced.
On January 31st, the Central Bank of Brazil (BCB) will hold a meeting of the Monetary Policy Committee (COPOM). Given the expected slowdown in global inflation and domestic economic growth, BCB has cumulatively lowered interest rates by 2.0% in four meetings since August last year. In the COPOM statement on December 13th last year, it was stated that "as expected, the composite inflation rate has embarked on a path of deflation, and indicators related to basic inflation are approaching the target." COPOM members unanimously believe that interest rates will continue to be lowered at the same pace in the future. In this meeting, it is expected to be lowered by 0.50% for the fifth consecutive time, and the policy interest rate will be lowered to 11.25%.
The Brazilian Bureau of Geography and Statistics (IBGE) announced on January 12th that the Consumer Price Index (IPCA) for December last year increased by 4.62% year-on-year, in line with the central bank's target for 2023 (3.25% ± 1.50%). As of January 26th, the IPCA-15 (30 days from the 16th of the previous month to the 15th of the current month) was 4.47%, a slowdown in growth compared to the previous month (4.72%). The decrease in transportation costs and air ticket prices has suppressed inflation. Regarding the central bank's target for 2024-2026, BCB has set it at 3.00% ± 1.50%. It is worth noting whether the January IPCA increase rate, which will be announced in early February, has slowed down from 4.62% year-on-year last year, and whether it falls within the allowable range of the central bank's target.
Brazil is not only facing labor market tensions but also concerns about currency depreciation and deteriorating fiscal conditions due to the decline in commodity prices. The Ministry of Finance announced on the 29th that the central government's basic fiscal deficit for 2023 is R $230.5 billion, the second largest deficit on record. The government has set a goal of eliminating the deficit within this year, but the BCB is wary of rising inflation again, so it will cautiously push for interest rate cuts in the future. The market expects to lower interest rates by 2.00% in four meetings in the first half of the year, but the magnitude of the rate reduction will decrease in the second half of the year. It is expected that the policy interest rate will be 9.00% by the end of 2024.
■ It is expected that the loose stance will continue, but if the inflation rate remains within the central bank's target range, the magnitude of interest rate cuts will be reduced.
On January 31st, the Central Bank of Brazil (BCB) will hold a meeting of the Monetary Policy Committee (COPOM). Given the expected slowdown in global inflation and domestic economic growth, BCB has cumulatively lowered interest rates by 2.0% in four meetings since August last year. In the COPOM statement on December 13th last year, it was stated that "as expected, the composite inflation rate has embarked on a path of deflation, and indicators related to basic inflation are approaching the target." COPOM members unanimously believe that interest rates will continue to be lowered at the same pace in the future. In this meeting, it is expected to be lowered by 0.50% for the fifth consecutive time, and the policy interest rate will be lowered to 11.25%.
The Brazilian Bureau of Geography and Statistics (IBGE) announced on January 12th that the Consumer Price Index (IPCA) for December last year increased by 4.62% year-on-year, in line with the central bank's target for 2023 (3.25% ± 1.50%). As of January 26th, the IPCA-15 (30 days from the 16th of the previous month to the 15th of the current month) was 4.47%, a slowdown in growth compared to the previous month (4.72%). The decrease in transportation costs and air ticket prices has suppressed inflation. Regarding the central bank's target for 2024-2026, BCB has set it at 3.00% ± 1.50%. It is worth noting whether the January IPCA increase rate, which will be announced in early February, has slowed down from 4.62% year-on-year last year, and whether it falls within the allowable range of the central bank's target.
Brazil is not only facing labor market tensions but also concerns about currency depreciation and deteriorating fiscal conditions due to the decline in commodity prices. The Ministry of Finance announced on the 29th that the central government's basic fiscal deficit for 2023 is R $230.5 billion, the second largest deficit on record. The government has set a goal of eliminating the deficit within this year, but the BCB is wary of rising inflation again, so it will cautiously push for interest rate cuts in the future. The market expects to lower interest rates by 2.00% in four meetings in the first half of the year, but the magnitude of the rate reduction will decrease in the second half of the year. It is expected that the policy interest rate will be 9.00% by the end of 2024.