Latin America’s largest economy is showing mixed signals, with stronger agriculture production while other sectors grow modestly, policymakers wrote in their minutes. With more resilient activity, central bankers raised their estimates for neutral rates, which neither stimulate nor restrict the economy, to 4.5% from 4% previously. 

“They are opening the door slowly, cautiously, given the uncertainty that remains around inflation targets,” said Cristiano Oliveira, chief economist at Banco Pine. “If current 3% goals are kept unchanged, rate cuts will begin in August.” 

Investors are awaiting a decision on long-term inflation targets later this week, when Campos Neto, Haddad and Tebet will meet to set the goal for 2026. 

“Decisions that induce the reanchoring of expectations and that raise confidence in inflation targets would contribute to a faster and less costly disinflation process, allowing monetary easing,” central bankers wrote in their minutes. 

Lula’s first two picks for the bank’s board are likely to participate in August’s rate decision meeting, with former deputy Finance Minister Gabriel Galipolo seen as an advocate for lower borrowing costs.

Eoin Treacy's view

Brazil showed the rest of the world what has to be done to get inflation under control. They raised rates by 11.75% in 17 months. That’s double the Fed’s pace of tightening. Brazilian inflation has dropped from a peak of 12.13% in April last year to the latest reading of 3.94%. That level is back in the region of the lows from back in 2006/7 and 2017-2020.

Brazil’s central bank is rightfully cautious about easing policy because they are suspicious of politicians who only want to spend. Forcing the government to embrace fiscal restraint towards public sector wages was a necessary negotiation tactic as they prepare to cut rates.

There is every chance consumer activity will rebound as soon as monetary policy eases up. However, the reason the Real has been so firm is because of the interest rate differential. The downside key day reversal on Monday and follow through on Tuesday suggest a peak of at least near-term significance.


Several of the banks are short-term overbought so there is scope for some consolidation. The iBovespa is pausing at the upper side of its two-year range but firmed in a convincing manner today.