Brazil’s easing cycle likely to be deeper than most expect

Brazil’s monetary policy stance is extremely tight – the policy rate is at its highest level since the mid-2000s. With GDP growth likely to disappoint and inflation softening, there should be ample scope for interest rates to come down when the easing cycle begins (most likely in January). Our end-2026 Selic rate forecast is 11.25%, versus 15.00% now. The market has tended to underestimate the scale of easing in previous cycles, and we think it may be doing so again now.