BCB close to end its tightening cycle

The key addition to the Banco Central do Brasil's (BCB) usual short post-Copom statement at the July meeting was - "The Committee understands that the maintenance of this basic interest rate level, for a sufficiently long period, is necessary for the convergence of the inflation to the target at the end of 2016 ."

"The market interpretation of this statement in the context of the current tightening cycle is that the BCB has decided to end the tightening cycle after raising rates to 14.25%. This interpretation might not be necessarily wrong as the last pause beginning in May 2014 (and lasted until October 2014) followed another surprise addition to April Copom statement", says Societe Generale.

"The Committee will monitor the evolution of the macroeconomic scenario until its next meeting, so that it then defines the next steps in its monetary policy strategy." (Copom statement - 2 April 2014). 

"With the economy set to contract nearly 2% this year, medium-term growth expectations plummeting and the labour market deteriorating, the BCB may eventually find it difficult to avoid taking the middle path between growth and inflation", added Societe Generale.