Brazil Economic Forecast Monthly: The early end of the cutting cycle

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Brazil Economic Forecast Monthly: The early end of the cutting cycle

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28 Jul 2026 09:47:30 ET │ 12 pages

Brazil Economic Forecast Monthly

The early end of the cutting cycle

CITI'S TAKE

Leonardo Porto AC

We maintain a hawkish view that Copom will keep the Selic rate unchanged in +55-11-4009-2947

August, diverging from market expectations of another rate cut. The further de- leonardo.porto@citi.com

anchoring in medium/long term inflation expectations, the fiscal expansion ahead

of elections, and the resilient economic activity support a cautious stance on Paulo Lopes AC

monetary policy. +55-11-4009-2714

paulo.lopes@citi.com

Copom on hold — Our more hawkish and out of consensus call of Copom on hold in AC Thais OrtegaAug-26 is based on the worrisome dynamic of inflation expectations, upward

revisions of BCB’s 2026 output gap pointing to no inflationary relief, and Copom’s +55-11-4009-3412

current communication refusing to indicate forward guidance for the next meeting. thais.ortega@citi.com

Looking ahead, a less inflationary global outlook combined with some strengthening

in the fiscal anchors by the to-be-elected government point to a resumption of the

cutting cycle in 2H27, driving the Selic rate to 12.50% at 2027YE.

Inflation — We maintain our lower-than-consensus CPI inflation forecast at 4.8%

YoY in 2026YE, mainly related to food prices perspective. For 2027YE, we maintain

our 4.0% forecast, based on the assumption that the expected Copom’s more

hawkish posture in the near term will likely halt the rising inflation expectations.

Fiscal easing — As the election approaches, the administration continues

announcing fiscal and credit measures, which already amount to 0.7% of GDP. Most

of these measures impact mainly the nominal fiscal result. Thus, despite