Brazil - Current BCB hawkishness underscores intent to reclaim policy credibility

Few central banks are currently more hawkish than the Banco Central do Brasil (BCB). On 3 June, the BCB hiked its policy rate (SELIC) another 50bps to 13.75%, reaching 275bps of cumulative tightening since October 2014. 

Before 2014's presidential election, the BCB was much criticised for falling behind the curve regarding capping inflation, damaging its policy credibility. BCB actions this year suggest it is back to take care of unfinished business, with  enewed resolve to put the inflation genie back in the bottle, even if it means exacerbating this year's recession. 

Minutes of the 3 June COPOM meeting underscored the BCB's focus on bringing inflation down to its 4.5% target by end-2016 (the last time reported inflation was 4.5% was August 2010). 

The BCB maintained its hawkish tone, highlighting the need to "remain vigilant" on inflation, adding "perseverant and determined" in reference to combating second-round inflation effects. 

Inflation expectations are not falling as quickly as the BCB would like - recent inflation prints surprised on the upside in May, leaving the BCB with significant work ahead. The BCB is not done, and is likely to continue at its current 50bps tightening clip. 

"We expect a 50bps hike at the 29 July COPOM meeting, and likely another 50bps after this, taking the SELIC rate to 14.75% (from 14.00% previously)", says Standard Chartered.