Key Points
— Brazil’s Central Bank monetary policy director Nilton David told a JP Morgan seminar in Washington on Wednesday that the recent real appreciation is “conjunctural, not structural,” and that the bank is not counting on currency strength to hit the continuous 3% inflation target—a direct pushback against the market narrative that has driven the dollar below R$5.
— David said Copom members are “not happy” that Focus-survey inflation expectations for 2028 have risen to 3.60% from 3.50%, calling the Focus combination “not compatible with a monetary authority that targets the meta.” He characterized the current cutting cycle as “calibration, not easing” and said Selic will remain in restrictive territory at cycle end.
— David confirmed the BC has no pre-committed budget for rate cuts, signaling that the 25bp move to 14.75% in March and the market-priced additional 25bp expected at the end of April should not be read as a commitment to a specific terminal rate.
The real’s 9% year-to-date rally is being treated by the BC the same way a responsible central banker should treat any exogenous gift: gratefully, but without counting on it. David said the quiet part out loud in Washington, and it reprices the Brazilian rate curve.
The Brazil central bank Nilton David remarks delivered at a JP Morgan seminar during IMF Spring Meetings week carry institutional weight well beyond a domestic speech, because they were aimed squarely at the global investor audience that has spent the past month pricing Brazilian assets as if the currency-led disinflation story were permanent. The Rio Times, the Latin American financial news outlet, reports that the monetary policy director explicitly rejected that framing: the real’s strength is conjunctural, the BC is not counting on it to hit the 3% continuous inflation target, and second-order effects from commodity shocks must be fought rather than allowed to pass through.
The Real’s Rally Is “Conjunctural, Not Structural”
David described the Brazilian currency as a “high-beta” asset that typically moves more than emerging-market peers in both directions, both ways. In the recent period, he said, the real has surprised positively against that expected beta—but “the explanations I find for this are more conjunctural than structural, therefore I don’t count on this going forward.”
He added a technical point with hawkish implications: real depreciation tends to push inflation expectations higher with more force than appreciation pushes them lower, meaning the BC cannot rely on symmetric currency effects. When the dollar goes up expectations break, and when the dollar comes down they do not fully reset. That asymmetry is why the dollar trading below R$5 for the first time in two years is not, in the BC’s reading, a free pass on monetary tightness.
The 2028 Expectations Problem
The most hawkish signal came on long-horizon expectations: the Focus survey now puts 2028 median IPCA expectations at 3.60%, up from 3.50% a month earlier and well above the 3% statutory target. David was blunt: “We are not happy that inflation expectations for 2028 are rising, and I need to deal with this behavior because there are consequences.”
He said the Focus combination of projections “is not compatible with a monetary authority that targets the meta,” and noted that rising medium-term expectations suggest market participants believe the BC might not fully combat second-order effects from the Iran war’s commodity shock—“which is a mistake.” Translation: if expectations don’t re-anchor, the cutting cycle stops.
Calibration, Not Easing
David reinforced the distinction the Copom introduced in its March communiqué, when it cut the Selic by 25 basis points to 14.75%. “By calibration, I mean we will exit this process still under monetary tightening conditions.” The same nominal rate level, he noted, is now accompanied by lower actual inflation and lower expectations than when the rate was being raised—meaning the real-rate stance has become more restrictive on the way up and remains restrictive on the way down.
Asked directly how far the BC might go in the calibration cycle, David said the “budget” for cuts has never been discussed at Copom—a deliberate refusal to anchor expectations around a terminal rate. The market has priced another 25bp cut at the end-of-April meeting based on Iran-war uncertainty dynamics, but David’s Washington remarks do not endorse that pricing. “The Iran conflict is bringing much more uncertainty, as if we didn’t have enough,” he added.
What This Means for the Brazil Trade
The carry-trade reading of Brazilian assets—Selic at 14.75%, Iran-war-driven dollar weakness, and a 3% target within theoretical reach—has been the dominant explanation for R$65 billion in net foreign inflows year-to-date and Ibovespa records above 198,000 points. David’s speech does not reverse that trade, but it narrows it: the BC is signaling that the terminal Selic will stay in restrictive territory, that Focus 2028 expectations need to re-anchor before further cuts become automatic, and that the currency cannot be used as a substitute for monetary discipline. For a market that has been pricing Brazilian rates as an easy convergence trade toward 12.5% by year-end, Wednesday’s message from Washington is that the easy part is over.
Related Coverage: Dollar Falls Below R$5 as Brazil Rally Accelerates • IMF WEO: Latin America Grows 2.3% • Investing in Brazil 2026 Guide