Rate Cuts Ahead: JPMorgan and UBS BB’s Forecasts for Brazil

Brazil’s Central Bank is planning more interest rate cuts in 2024. JPMorgan and UBS BB, two big banks, see these cuts differently. Yet, both agree on the general economic trend.

JPMorgan sees three cuts coming. First, they expect two cuts of 0.5% each. Then, they see one more cut of 0.25%.

They believe the final rate will be 9.5%. This view follows a 0.5% cut on March 20, 2024, which lowered the Selic rate to 10.75%.

That move matched what many thought would happen. Still, JPMorgan notes a lively discussion on what the Central Bank will do next.

They think the Bank wants to keep its options open as uncertainties grow both in Brazil and worldwide.

From December to February, Brazil saw strong economic growth and inflation that was higher than expected.

Even so, the Central Bank did not change its inflation forecasts for 2024 and 2025. They stayed at 3.5% and 3.2%.

JPMorgan reads this as a sign that the Bank’s new messages don’t mean a change in its final rate goal.

UBS BB predicts a bolder move. They expect the Selic rate to drop to 8% by year’s end. Their forecast comes from their inflation prediction.

They think inflation will meet the central target of 3% by the end of the year.

UBS BB believes the Central Bank’s latest message, which hinted at more cuts to come, does not rule out reaching this final rate.

Both banks highlight a tricky balance

UBS BB has adjusted its expectations. Instead of a 75-basis-point cut in June, they now see a 50-basis-point cut.

However, they still expect the rate to hit 8% by December. This change shows they understand the Central Bank’s hint for more flexibility as the situation evolves.

Both banks highlight the tricky balance between growing the economy, controlling inflation, and adjusting policy.

Their differing end-rate predictions show careful planning by Brazil’s Central Bank. It aims to keep the economy stable and growing amid uncertain times.

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