🔆 BUYSIDEBRAZIL | WEEKLY REPORT We expect the Copom to keep the Selic rate unchanged at its upcoming meetings – 30/10
✅ The election outcome has led to a deterioration in fiscal risk perceptions, significantly altering the outlook for Brazilian monetary policy. Despite the reduction in political uncertainty, doubts remain regarding the ability to implement measures that would ensure a sustainable public debt trajectory. Against this backdrop, the lack of concrete signals of fiscal consolidation has contributed to higher risk premiums and a deterioration in domestic financial conditions.
✅ In light of this scenario, we have revised our exchange rate and inflation forecasts to incorporate a more adverse macroeconomic environment. We now expect the exchange rate to reach BRL 5.40 per US dollar at the end of both 2026 and 2027, compared with our previous forecast of BRL 4.90. The weaker currency adds inflationary pressures, both through its direct impact on prices and the increased risk of inflation expectations becoming further unanchored. Accordingly, we have revised our IPCA inflation forecast for 2027 to 4.7% and now project inflation of 4.0% in 2028.
✅ The combination of additional inflationary pressures and a greater risk of inflation expectations becoming unanchored is likely to prompt the Copom to interrupt its monetary easing cycle. Although economic activity continues to show signs of slowing, we believe its disinflationary effects are insufficient to offset the deterioration in the balance of risks. Therefore, we now expect the Selic rate to remain unchanged at 13.75% over the upcoming meetings, with the Central Bank adopting a more cautious stance until greater clarity emerges regarding the fiscal outlook and the evolution of inflation expectations.
