Brazil’s new central bank governor, Roberto Campos Neto, inherits a benign inflation environment and we now think the Selic rate will be left unchanged at its current historic low of 6.5% until at least end-2020. In contrast, the markets are pricing in 200bp of hikes next year. What’s more, there are reasons to think that, if some type of pension reform can be passed, interest rates of 6-7% will be the new norm.
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