Brazil’s tightening cycle likely to be sharp but short

The Brazilian central bank’s 75bp hike in the Selic rate (to 2.75%) and hawkish statement point to a front-loaded tightening cycle in the coming months. We now expect a further 200bp of hikes (to 4.75%) over the next three meetings. But we think the cycle will draw to a close by the end of Q3 as inflation starts to fall back. Most expect that the central bank will continue to tighten going into 2022.