For the sixth consecutive week, Brazil’s financial market lowered its inflation forecast. The number now sits at 3.95% for 2026 — the first time it has slipped below 4% since expectations began climbing in mid-2025 — according to the Focus survey published Wednesday by the Central Bank.
Four weeks ago the projection stood at 4.02%. The direction is unmistakable. Brazil’s official inflation target is 3% annually, with a tolerance band of 1.5 percentage points in either direction, placing the ceiling at 4.5%. The forecast for 2027 inflation holds steady at 3.80%.
The rate cut countdown
The Selic benchmark rate has been parked at 15% since June 2025, the highest level since July 2006. The Central Bank held it there through five consecutive meetings, insisting that elevated uncertainty demanded patience. That patience appears to be running out.
At its January meeting, the monetary policy committee Copom signaled it expects to begin easing at its next meeting in March, provided inflation remains on track. Governor Gabriel Galípolo, who took office in January 2025 and raised rates by a cumulative 275 basis points, has earned market credibility. His hawkish tenure makes the coming pivot more believable.
The Focus survey shows analysts expecting the Selic to fall to 12.25% by year-end 2026 and 10.50% by end-2027. Market consensus suggests 50-basis-point cuts at each of the seven remaining policy meetings this year. Even at 12.25%, Brazil would maintain one of the highest real interest rates among emerging economies.
Growth pays the price
The cost of crushing inflation has been growth. GDP forecasts remain anchored at a modest 1.8% for both 2026 and 2027, well below the 3.2% average of 2022–2024. The exchange rate projection holds at 5.50 reais per dollar ($0.18) for both years.
The external accounts tell a more encouraging story. The trade surplus is forecast at $68 billion in 2026 and $72.3 billion in 2027. Foreign direct investment projections are even stronger: $75 billion this year and $78.5 billion next — a signal that international investors are betting on Brazil’s stability despite the slow growth.
With October elections approaching, the timing of rate cuts carries political weight. President Lula has spent years criticizing the Central Bank for choking growth. The institution he once attacked is now poised to deliver what he has long demanded — but on its own terms, and only because the inflation numbers finally justify it. This is part of The Rio Times’ daily coverage of Latin American markets and financial news.
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