Global banks turn hawkish on Brazilian interest rates after policy statement

Morgan Stanley and BNP Paribas raised their 2021 year-end calls outright

  

BRASILIA- Brazilian interest rates are now likely to rise more quickly or more aggressively, according to a clutch of major global banks, after the country's central bank struck a hawkish tone in its statement that accompanied a second hike in borrowing costs.

Morgan Stanley and BNP Paribas raised their 2021 year-end calls outright, Citi, Bank of America and Rabobank kept their forecasts but now anticipate a faster pace of tightening, and Barclays said it could revise its outlook next week.

The 75 basis point rise in the benchmark Selic rate to 3.50% was flagged by policymakers and predicted by all 29 economists in a Reuters poll. 

But the tone of the accompanying statement was hawkish, notably policymakers' line that there is no firm commitment to a 'partial normalization' process and that future moves "could be adjusted to assure the achievement of the inflation target."

"We now think the (central bank) will have to go for a full normalization and hike rates to 6.5% in 2021 versus our earlier forecast of 5.0%," BNP Paribas economist Gustavo Arruda and his team wrote in a note on Thursday.

"Taking into account the more challenging inflation environment, we now expect two hikes of 75bp in June and August and three hikes of 50bp in September, October and December," they said.

Economists at Morgan Stanley raised their 2021 Selic forecast to 5.50% from 5.00% and the 2022 forecast to 6.50% from 6.00%.

Mauricio Une at Rabobank maintained his forecast for a further 200 basis points of tightening this year, but now expects that to be delivered over three policy meetings instead of four.

Citi's Leonardo Porto said he will wait for more hard economic data and the policy meeting minutes for a clearer idea on how long Copom will stick with its 'partial normalization process', but "we recognize the increasing risks of a higher interest rate."

(Reporting by Jamie McGeever Editing by Chizu Nomiyama) ((jamie.mcgeever@thomsonreuters.com; +55 (0)11 97189 3169; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net))


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