Itaú Lowers Brazil’s Inflation Forecast, Holds Interest Rates Steady Amid Global Trade Uncertainty

Itaú Unibanco, Brazil’s largest private bank, has revised its 2025 inflation forecast downward to 5.5% from 5.7%, citing falling gasoline prices and declining metallic commodity costs.

The bank maintained its benchmark Selic rate projection at 15.25% for 2025 but flagged risks tied to global trade tensions and a potential economic slowdown.

This adjustment reflects Brazil’s balancing act between domestic resilience and external volatility, particularly from the U.S.-China trade war reshaping commodity flows.

The bank projects GDP growth of 2.2% in 2025, though with a “downward bias,” and 1.5% in 2026. First-quarter 2025 GDP expanded by 1.6%, driven by agriculture and broad sectoral gains.

Meanwhile, the U.S. dollar is expected to hold at R$5.75 through 2026, supported by interest rate differentials but pressured by fiscal risks.

Itaú warns that global trade disruptions could amplify Brazil’s vulnerability via commodity prices and capital flight, despite its relatively closed economy. Monetary policy remains restrictive, with two 0.5% Selic hikes anticipated by mid-2025.

However, the second increase hinges on international developments, including exchange rate stability. Inflation risks skew downward if oil and metals slide further, but agricultural export demand—spurred by China’s pivot from U.S. tariffs—could push food prices higher.

Brazil’s Economic Outlook

Beef and poultry exports to China surged 33% and 19% year-on-year in early 2025, lifting domestic soybean premiums to $1.15 over U.S. equivalents.

Fiscal challenges compound uncertainties. Itaú forecasts primary deficits of 0.7% of GDP in 2025–2026, with public debt stabilization requiring stricter spending controls.

The Central Bank’s Focus Survey contrasts with Itaú’s outlook, predicting 5.65% inflation and a weaker real (R$5.90) for 2025. Brazil’s labor market shows resilience, with unemployment projected at 6.8% in 2025.

However, rising wages and productivity gaps risk fueling services inflation, which is already at 8.5%. The bank stresses caution, noting global recession risks if trade conflicts escalate.

Brazil’s economic trajectory now hinges on navigating external shocks and internal fiscal discipline, with Itaú’s tempered forecasts underscoring the fragile equilibrium between growth and stability.

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