BCB’s statement highlights central bank’s lack of confidence for medium-term inflation path

During its latest monetary policy meeting, the Central Bank of Brazil’s monetary policy Committee (Copom) kept the benchmark interest rate on hold at 14.25 percent, as was widely anticipated. However, the statement, which appears to be a welcome change brought in by the new central bank President Ilan Goldfajn, mainly highlighted the Central Bank of Brazil’s lack of confidence in its own medium-term inflation path, said Societe Generale in a research report.

The lack of confidence mainly stems from the existing uncertainty regarding the degree and success of the fiscal adjustments, added Societe Generale. This is a clear threat to the projection of policy easing starting in August; however, it does not alter the projection of the interest rate reaching 13.5 percent by the end of 2016. The upcoming release of the July Copom meeting is likely to provide some insight, stated Societe Generale.