BCB takes a dovish turn

The Brazilian Central Bank’s (BCB’s) statement from last night’s meeting suggests that interest rates will be left unchanged over the next few months at least. We think a tightening cycle will start next year, probably in Q2, as some of the optimism surrounding the incoming government’s reform promise fades. But the dovish turn by the BCB has prompted us to revise down our interest rate forecast. We now expect the Selic rate to be raised from its current level of 6.50% to 7.75% by end-2019 (previously 8.50%).