The BC thinks that inflation will fall less than expected. And it is what determines the rhythm of the cuts. “There is still doubt about the speed of falling inflation in the world. This uncertain scenario adds to local doubts and, according to Copom, requires caution in the management of interest rates”, published Galapagos Capital.
What the Central Bank wants is for it to reach 3% per year. But the bank even revised its inflation target upwards at this meeting: previously, the forecast was 3.5% and has now risen to 3.8% by the end of 2024. “Events such as the floods in Rio Grande do Sul can also putting pressure on food inflation, making it difficult for the Selic to fall”, says Azevedo.
All these factors cause the disinflationary process to slow down. That’s what Goldman Sachs says. With prices falling less here and abroad, it is necessary to have “more serenity in cutting interest rates”, published the bank.
Government spending can get in the way
As the BC links interest cuts to the fall in inflation, the fiscal can be harmful. “A credible fiscal policy committed to debt sustainability contributes to anchoring inflation expectations and reducing interest rates”, explains Goldman Sachs, in a document for investors.
Does rising GDP hurt?
The Copom highlighted that economic activity and the job market are stronger than expected. This causes Brazil’s Gross Domestic Product, GDP, to rise. And is it good. But for the committee it is a warning sign that inflation could rise.
