Brazil: time to re-visit our forecasts?

Two developments over the past week make this an ideal opportunity to revisit our forecasts for Brazil. On the one hand, weak Q1 GDP data support our long-held view that the economic recovery will disappoint. But on the other, the decision to raise interest rates by a larger-than-expected 50bps seems to go against our expectations for a relatively modest monetary tightening cycle. Even so, there are still good reasons to stick to our core view that this will be the smallest and shortest tightening cycle in Brazil’s history.