Split decision stokes fear of Tombini repeat

The split on the board brought back echoes of former Governor Tombini and possible government interference in central bank decisions. The implication is that the BCB's commitment to the inflation target could weaken from 2025 onwards. We continue to forecast a year-end Selic of 9.50% (to be more detailed , we forecast between 2 and 4 rate cuts of 25 bps in the remainder of the year) and a terminal rate of 8.50%. However, our terminal rate may be too high in view of the Galipolo -led vote of -50 bps. In our view, the BCB will be data and Fed dependent in the coming COPOMs. In the coming days, we should expect a continuation of the ‘clean-up’ operation by both RCN and Galipolo to signal to the market a firm commitment to the inflation target. Nothing is more damaging to a central bank governor than a lack of credibility.