BCB's Picchetti expects lower growth from cyclical sectors this year; this is a sign monetary policy is working
- More important and more concerning, are inflation expectations deviating from target in 2027 and 2028.
- It is difficult to explain the premium embedded in inflation expectations deviating from the target.
- Market does not foresee fiscal consolidation, which may explain part of de-anchored inflation expectations.
- We do remain cautious, still not sure about how the conflict is helping economic growth in Brazil.
- Uncertain environment affects both downside and upside risks for inflation, considering the potential duration and consequences of the conflict in Iran.
- Brazilian Real is performing well, but it is not relied upon to carry out the monetary policy function.
- As of now, things have not improved since March meeting.
Context
The comments from BCB's Picchetti indicate a recognition of challenges within Brazil's monetary policy framework, particularly concerning inflation expectations moving away from targets in the medium term. This perception of lower growth from cyclical sectors suggests that monetary policy is having some effects, although concerns about fiscal consolidation and external factors, like geopolitical conflicts, cast uncertainty on future economic stability and inflation trajectories.
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