The last COPOM decision revealed a 50bp hike which followed the 125bp of hikes seen since the tightening cycle was restarted last October. Although this move was expected , in the run up to the 26th March release of the Quarterly Inflation Report, markets began to price out expectations of continued rate hikes from the BCB. The QIR itself did little to help that dynamic as the lack of the phrase “especially vigilant” and the market began to question whether the BCB might tolerate higher inflation to avoid continued tightening while activity slowed. Since then however central bank rhetoric has been at pains to stress they remain on an orthodox policy path and are still in inflation fighting mode. In recent speeches, BCB Governor Tombini and the Director of Economic Policy, Luiz Awazu, have both reiterated that the Bank will remain vigilant and monitor the second round effects of price realignment on headline inflation in the coming months. The most recent price pressure data point to some resilience in the headline and inflation.“We maintain the view that the BCB is likely to announce another 50bp hike at Wednesday’s COPOM meeting. Looking further ahead, we expect a 25bp hike at the 3rd June meeting to take the SELIC up to a rate of 13.50%. As it stands, we think this is likely to be the Bank’s final move of this tightening cycle.” said Rabobank
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