BCB will likely cut this week; BANXICO to remain on hold

Research evidence excerpt

Accessible version

What’s priced in

BCB will likely cut this week; BANXICO to

remain on hold

In Brazil, the central bank meets on August 5. The market is pricing a 25bp cut for the

meeting. Our economist, David Beker, forecasts the Central Bank of Brazil (BCB) to cut

25bp on August 5. We previously expected the easing cycle to end with a 25bp cut at

next week's meeting, we now see room for an additional 25bp reduction in September.

As a result, we expect the Copom to lower the Selic rate to 14.00% next week and to

13.75% in September, and then enter a prolonged pause (see report: Brazil Watch:

Copom preview – cutting rates while markets allow 31 July 2026).

In Mexico, the central bank meets on August 6. The market is pricing no change for the

meeting. Our economist, Carlos Capistran, forecasts the Central Bank of Mexico

(BANXICO) to keep the monetary policy rate unchanged at 6.50% on August 6. The

stronger GDP print does not change our BANXICO call. In our view, stronger growth

reduces downside risks, but not enough to point to overheating yet. We still estimate

slack in the economy, and both headline and core inflation are currently below 4%. This

gives BANXICO room to remain patient. We continue to expect BANXICO to stay on hold

for the rest of the year and likely until the mid-term elections in 2027. This remains our

baseline even if the Fed hikes, with our US economists expecting three Fed hikes this

year (see report: Mexico Watch: Strong 2Q GDP lifts growth, but not enough to move

Banxico 30 July 2026).

Chart 1: 12-month priced-in policy rate change vs BofA forecasts

Our forecasts are more dovish than market expectations

150

100

150

96

61

53

50

100

50

41

31

30

23

18

50

18

0

-6

-50

Hikes

-100

Cuts

-17

-26

BofA

-50

-100

-150

Brazil

Israel

Hungary

Peru

Malaysia

Colombia

Taiwan

Thailand

Chile

Poland

S.Africa

Mexico

Czech

Korea

-150

Updated on July 31. Source: BofA Global Research. 12 month period ends 31 July 2027

BofA GLOBAL RESEARCH

Trading ideas and investment strategies discussed herein may give rise to significant risk and are

not suitable for all investors. Investors should have experience in relevant markets and the financial

…