06:52 AM EST, 11/06/2024 (MT Newswires) -- Deutsche Bank said it expected that Brazil's central bank (BCB) will unanimously hike the Selic policy rate by 50bps to 11.25% on Wednesday.

Given high uncertainty, the bank sees little, if any, value in providing forward guidance, and it believes BCB will refrain from signaling any path. However, additional 50bps hikes should be the default, barring renewed inflation pressures and de-anchoring of expectations.

Inflation and activity require rates above neutral, but the latest prints have been mixed and unlikely to point to any significant change in the underlying BCB model inputs, stated the bank.

However, the currency is weaker and inflation expectations have ticked up since the last meeting, which suggests that the inflation forecast for March 2026 may also have inched up by a couple of tenths, pointed out Deutsche Bank.

In principle, this would require further tightening to achieve the target then, but monetary authorities may decide to extend an eventual pause instead depending on global and domestic activity and inflation data.

The magnitude of the cycle still hinges on fiscal and para-fiscal parameters, which are unlikely to be defined before this meeting. Even after the disclosure of these parameters, credibility will likely continue to weigh on foreign exchange and expectations for long, it added.

We see Selic maxing out at 12.25% in January, but the risk remains tilted to the upside.