Fynsa
I’m not going to say I expected it, but it happened. Nor was it for the reasons given, but it’s done now. At the June meeting and subsequent IPoM release, the Central Bank kept the TPM at 11.25%, as expected, but left the door wide open for an immediate cycle of rate cuts aimed at reducing the “contractionary” nature of monetary policy.
It’s interesting what happened because the macroeconomic outlook that emerged is not very different from that of March and from what we thought would happen. Given that, we saw no reason to change the stance of monetary policy, but we hadn’t anticipated a significantly different assessment of the risk landscape. In this regard, the probability that the process of convergence toward inflation would be interrupted or definitively reversed has fallen significantly—something that, while we agreed with, we had not ruled out so categorically.
One rather interesting indicator—to which, unfortunately, we do not have access—relates to the frequency with which companies are adjusting their prices. This work with microdata has been complementing the usual analysis conducted by the regulatory agency and allows us to identify certain trends that aggregate figures sometimes hide. Thus, following a period in which price movements by firms had increased—mainly due to those that had been raising their prices (for both goods and services)— we now see that, although these fluctuations have remained high, they have been driven by a rise in the number of companies that have lowered their prices.
In any case, it’s not all black and white. There are still risk factors that need to be monitored, especially those related to products that, by their very nature, are more persistent. Services play a key role here, and several sectors have not yet shown a slowdown similar to the one the economy has been experiencing in recent months. Since this situation persists, monetary normalization would begin sooner but proceed more slowly. The dissenting votes from this meeting offer interesting clues about the process, with two board members favoring a 50-basis-point rate cut. In the Central Bank’s statements, nothing is left to chance, and I believe this information is key to understanding what might happen at the July meeting and beyond. Thus, the rate-cut cycle would begin with these 50-basis-point cuts, and as the data show (or fail to show) the consolidation of inflation normalization, we might see some acceleration in the process. But let’s take it one step at a time.
