Economists see signs of more caution in BC, even as they point to maintaining the pace of cuts

Although maintaining the current 0.50 percentage point rate of cuts was cited at “future meetings” as more appropriate for adoption – which could be seen as a lighter (“dovish”) tone on Coboom’s part – economists found tougher “(hawkish)” signals in the meeting. British Columbia this Wednesday (1). Comments about the worsening external scenario and the marginal, albeit upward, revision in inflation expectations for 2024 and 2025 justify this reading.

For example, Leonardo Costa, economist at ASA Investments, highlights that Coboom commented in more detail, in his risk balance, on the worsening external scenario, with the long curve in the US increasing and the conflict escalating. In the Middle East.

Another interesting point, according to him, is that the Bank of British Columbia has not celebrated the current inflation data, which is lower in the core measure, especially in services, and that this could be read as being more “hawkish.”

In inflation forecasts, Costa cites an increase for 2024 (from 3.5% to 3.65%), on the basis of rising managed prices, and in 2025 (from 3.1% to 3.2%) on the basis of rising free rates. “In short, it was a little tighter than expected, but not by much,” he added.

Marco Antonio Caruso, chief economist at PicPay, comments that there is doubt as to whether there will be a change in the “guidance” to indicate cuts of the same size at the next meeting or meetings. Since the committee preferred the plural form, while maintaining the reference to at least two additional cuts of 50 basis points, this comment fulfilled the “facilitating” role of the statement, says the economist.

However, Caruso highlights that other changes have been of a more “radical” quality, especially in the international arena. The statement estimates that the scenario abroad requires attention and caution on the part of emerging countries.

The statement added: “The statement shows that if there is a certain budget on top of the total cuts, that is, a final Selec point, under this scenario, it is necessary to be more careful.” “Maybe they are internally discussing or rethinking the possibility that Sellick’s endpoint could be higher than previously envisioned,” Caruso muses. “If there is further deterioration expected in the IPCA for 2025, that will confirm the idea that perhaps this overall budget for Selec cuts will be smaller.”

Matthews Spies, an analyst at Empiricus Research, points to the risk of a prolonged delay in the US economic slowdown. This would cause continued pressure on interest rates. “If we have problems controlling domestic inflation, which has converged, or worse, in Brazilian finances, which is our Achilles’ heel.”

Warning message

Deborah Nogueira, chief economist at Tenax Capital, claims that the balance of risks has finally gained a new phrase, highlighting the difficult international environment. “This does not upset the balance of the risk panorama, but it sends a message of the need for caution.”

In the letter, I highlighted that the first two paragraphs were the ones that changed the most. “With regard to the international scenario, the mention of the opening of interest rates in the United States of America was accompanied by an emphasis on the need for attention and caution. At the local level, there was little change in the term activity, highlighting the ongoing slowdown.

In turn, Head of Fixed Income at Suno Research, Vinicius Romano, commented that Coboom reiterated the importance of aggressively pursuing fiscal targets, which are essential for stabilizing inflation expectations and, therefore, for managing monetary policy.

Daniel Cunha, chief strategist at BGC Liquidez, notes that BC has tightened its tone when updating the risk balance, absorbing greater uncertainty arising from the external scenario. “As for domestic developments, Coboom noted that activity and inflation are unfolding in line with expectations.”

According to his assessment, the new round of deterioration in inflation expectations shows less confidence regarding a full extension of the interest rate cutting cycle.

Luca Mercadante, an economist at Rio Bravo, believes that COBOM has reinforced the perception of activity slowly slowing down and the idea of ​​an increasingly uniform disinflation process, even though core inflation measures remain under pressure.

It is reported that “Coboom also spoke again about the importance of pursuing financial targets, without entering into the recent discussion about the possibility of changing the target set by the government.”

According to The Economic, the main novelty has been the focus on opening the curve in the USA, which is understood to be one of the biggest challenges to the sustainability of interest rate cuts next year. “However, these small changes do not change our outlook for the remainder of the year, and we believe that the Bank of Columbia should continue monetary easing at the pace imposed so far, of 50 basis points per meeting.”

Adriana Dobita, chief economist at Bloomberg Economics, said that the only change in the central bank’s statement for this meeting is the expected indication of rising US yields and geopolitical tensions, noting that this calls for special caution in monetary policy. . He believes that “this comment opens the way for BC to deviate from its plan to reduce half a point in each of the upcoming meetings, if the international scenario deteriorates.”

Tatiana Pinheiro, chief economist at Galapagos, believes that the statement maintained the assessment of the optimistic inflationary scenario, focusing on calming core inflation and anticipating a slowdown in economic activity in the coming quarters. “However, the monetary authority highlighted the difficult global scenario and the importance of achieving the primary target set for 2024 in interest rate decisions,” he says.

Galapagos’ assessment is that the current level of monetary tightening allows the Bank of Colombia to maintain the pace of cuts in some decisions, pending a reduction in uncertainty in the international environment. “We also see that the fundamental imbalance and the international scenario are the main constraints on the extent of monetary easing,” he adds.

Given this, Tatiana says that Selik’s forecast of 11.75% per annum in December 2023 was maintained, but the final rate estimates rose from 8% to 8.75%, due to the worsening international scenario and increasing uncertainty about the economic situation. Rebalancing public accounts in 2024.

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