How quickly will Brazil raise interest rates?

Last night’s decision to keep Brazilian interest rates unchanged at 8.75% was in line with our forecast but against that of the consensus, which had expected a 50bps hike. Yet the debate over the timing of the first hike may be something of a sideshow. The more important question is how far and how fast interest rates will eventually rise. We continue to think there are good reasons to expect the pace of tightening to be much slower than that which is currently priced into the markets.