The renewed fall in Brazil’s headline inflation rate in December, to 4.6% y/y, paves the way for another 50bp cut to the Selic rate (to 11.25%) at the central bank’s next meeting at the end of the month. But with inflation set to remain above target, fiscal risks likely to flare up again and the labour market only loosening gradually, we think interest rates will be lowered more cautiously than most currently expect.
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