Brazil rates: too much caution now priced in?

Strong GDP growth and rising inflation have raised the bar for further interest rate cuts in Brazil, and we expect a pause in the cycle later this year, with just one or two more 25bp cuts over the remaining four meetings of the year. But with real interest rates very high, disinflation likely to resume and pre-election stimulus likely to fade, there’ll be scope for a larger easing cycle in 2027. For now, we have pencilled in a reduction in the Selic rate to 11.75% by end-2027 (from 14.25% now), which is lower than most expect.