Brazil: history suggests fiscal reform is key for rate cuts

Brazil’s high real interest rates and stumbling economy suggest that some conditions are in place for Copom to resume its easing cycle. But a look back at the start of the past four rate cutting cycles suggests that policymakers will only lower the Selic rate once inflation expectations have fallen materially. The tried and tested way of achieving that in Brazil’s recent history is via credible fiscal reforms to improve the public finances.