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Brazil: 100bp Rate Hike To 12.25% (Consensus 12.00%) in Dec-24

• Brazil's Copom raised the Selic rate by 100bp to 12.25%, exceeding consensus expectations of 75bp due to elevated inflation projections and heightened inflation expectations.
• Stronger-than-expected domestic activity, widening output gaps, fiscal policy pressures, and currency risks necessitate a more aggressive monetary stance, with inflation risks skewed to the upside.
• Copom anticipates further rate hikes of similar magnitude, contingent on inflation trends, economic activity, and external risks, reaffirming its commitment to achieving price stability over the medium term.

Brazil: 50bp Rate Hike To 11.25% (Consensus 11.25%) in Nov-24

• Brazil’s Copom increased the Selic rate by 50bp to 11.25%, maintaining a hawkish stance amid persistent inflation and above-target inflation expectations.
• Upside inflation risks, including resilient economic activity and potential currency depreciation, influenced the decision; fiscal credibility remains critical for lowering risk premia.
• Inflation projections, domestic economic strength, and global disinflationary trends will guide future rate adjustments, sustaining Copom’s commitment to price stability.

Forceful Fed Rhymes From 1998

• The Fed’s 50bp rate cut was remarkably forceful relative to the resilient data. It relies on rates being far above their neutral setting despite no evidence for this tightness.
• Historical parallels to 1998 are mounting with the forceful start and conveniently timed political support. A repeat would mean an early pause and hikes returning in 2025.
• Brazil has tracked a year ahead of the Fed in the last hiking and cutting cycles. Its latest hike would also be consistent with the Fed following the 1998 scenario.

By Philip Rush

Brazil Policy Rate 10.75% (consensus 10.75%) in Sep-24

• Brazil's Copom raised the Selic rate by 25bps to 10.75%, in line with expectations, to counter persistent inflationary pressures amid stronger-than-expected domestic economic activity.
• Inflation expectations for 2024 and 2025 remain elevated, and Copom sees asymmetric risks, particularly from resilient services inflation, currency depreciation, and global uncertainties.
• Future rate adjustments will depend on inflation dynamics, expectations, and the global economic landscape, with the Committee committed to maintaining a contractionary stance to ensure inflation convergence toward its target.