Brazil Economics: Interest Rate ‘Calibration Cycle‘ is Likely Done

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Brazil Economics: Interest Rate ‘Calibration Cycle‘ is Likely Done

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30 Jun 2026 07:00:00 ET │ 12 pages

Brazil Economics

Interest Rate ‘Calibration Cycle’ Is Likely Done

CITI'S TAKE

Leonardo Porto AC

The interest rate “calibration cycle” is likely done as the inflation outlook +55-11-4009-2947

worsened further. Thus, we now estimate Selic rate stable at 14.25% amid leonardo.porto@citi.com

higher CPI inflation forecasts of 4.8% and 4.0% for 2026-27YE. Meanwhile,

tight presidential race keeps fiscal risks under watch. Paulo Lopes AC

+55-11-4009-2714

No further interest rate cut — We now see Copom on hold with the Selic rate at paulo.lopes@citi.com

14.25% as we do not see inflation expectations declining ahead. For next year, we AC Thais Ortegastill see a resumption of interest rate cuts, driving the Selic rate to 12.5% by 2027YE.

+55-11-4009-3412

Higher CPI inflation forecasts — We increase our CPI inflation forecasts to 4.8% YoY thais.ortega@citi.com

in 2026YE and to 4.0% YoY in 2027YE on the back of higher services inflation, de-

anchored inflation expectations amid a tight output gap.

Activity and labor — We maintain our 2026 GDP growth forecast at 1.8%. The 1Q26

GDP growth was temporarily boosted by the agriculture/livestock and industrial

sectors, and we continue seeing a gradual economic slowdown ahead with GDP

growth hovering around its potential. This activity outlook is aligned with a roughly

stable unemployment rate around its lowest level ever (5.8% on average in 2026).

Election and fiscal — Recent polls continued showing President Lula leading the

electoral race amid stable positive government evaluation. In the meantime,

additional fiscal measures increased uncertainties in the fiscal outlook. We see