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Central Bank’s potential signal change draws market attention

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Central Bank’s monetary policy director, Gabriel Galípolo, admitted that the bank’s use of the plural in signaling about potential interest rate cuts has drawn market attention and that a potential switch could affect expectations.He also commented on a possible change in the fiscal target to a 0.8% of GDP deficit, as analysts project, stating it’s "already priced in." Mr. Galípolo reiterated that Focus, Central Bank’s weekly survey with analysts, indicates that the market anticipates a deficit of this level for 2024, with over 75% of agents expecting a change from the zero-deficit target. Therefore, he noted, if a new target of 0.8% is implemented, it would be "relatively priced in." He added that a lower target would be "good news."Regarding future communication, Mr. Galípolo acknowledged the Central Bank’s awareness that ending the use of "plural" might negatively affect expectations. He explained that this approach creates a trade-off: reducing volatility while limiting the bank’s flexibility. "So far, I believe it has been an effective guidance," he said, emphasizing that data remains paramount, and the communication is conditional on the economic scenario.When questioned about the impact of the change on the terminal Selic rate (the end-of-cycle rate), Mr. Galípolo responded that "changes in guidance don’t necessarily translate to...

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