Market Expectations for Future Brazilian Rate Hikes Higher than Most Economist Forecasts

Market Expectations for Future Brazilian Rate Hikes match Pessimistic Economists Forecast

January 28, 2014

The Central Bank of Brazil’s (BCB) survey of economist’s expectations for future Copom monetary policy reports that the most pessimistic economists are forecasting SELIC at 12.2% for December 2014 and our analysis shows that this is in line with the market expectations of 12%.  They both diverge wildly from the average economist forecast of 10.94%.  The survey date is January 24, 2014.

The most pessimistic economists are predicting that the Copom will continue on its recent aggressive trajectory in the next month’s meeting and increase rates by another 50 basis points to 11.0%.  The average economist and the market are expecting a 25 basis point hike with a small probability of a 50 basis point hike at the end of February.

The forecast for both the most pessimistic economists and the market diverges from the average economist in July 2014 where most economists expect the Copom to hold steady.  The most pessimistic economists expect the Copom to hike another 50 basis points to 11.5%, while the market is hedging this bet with a forward rate of 11.36%.

The market and the pessimistic economists also expect the Copom to continue with the tightening policy into 2015.  The economists are expecting a 13.5% SELIC rate in July 2015, while the market expects 13.12%.

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Data Sources: Banco Central do Brasil Database; Cetip

 

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