The upcoming monetary tightening will also depend on the tone of fiscal policy

The minutes of last week's monetary policy meeting, in which the BCB hiked the SELIC by 25bp to 11.25%, suggested that not only the exchange rate but also the tone of fiscal policy and the pressures coming from administered prices will determine the pace and the final magnitude of the monetary tightening cycle that started last week. In spite of the uncertainty regarding these variables, especially high now given the lack of definition about who is going to be the Finance Minister at the beginning of Dilma Rousseff's second government, we expect the SELIC rate to continue to be adjusted at a 25bp pace in the next few months.

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