The drop in inflation in Brazil to 11.4% y/y in the first half of July provides the first clear sign that inflation has passed its peak and is now on a downwards path. But even so, with the headline rate far above target and fiscal risks growing, Copom’s tightening cycle has a little further to run (we expect an additional 75bp of hikes to 14.00%) and interest rates will remain high well into next year.
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