Three lessons from Brazil’s recent easing cycles

Brazil’s monetary tightening cycle is very close to being (or may already be) over, and attention is quickly turning to when and how far Copom will lower interest rates. Historically, the market has tended to underestimate how far rates are lowered – and we think the same is probably true this time round. But this rests on the government taking efforts to reduce the budget deficit and avoiding the temptation to turn to pre-election stimulus.