Brazilian Real: Cautious BCB easing offers limited support – Societe Generale

Societe Generale’s Dev Ashish notes that the central bank of the Brazil, Banco Central do Brasil (BCB) cut the Selic rate by 25bp to 14.0% as expected, extending a 100bp easing cycle since March. Ashish still anticipates one final 25bp cut to 13.75% later this year, supported by softer near-term inflation and moderating growth, but highlights fiscal risks and de-anchored expectations as constraints on further easing.

BCB keeps the door open to data-dependent easing

"The BCB cut the Selic rate by 25bp to 14.0% as expected and kept the easing cycle open while avoiding explicit forward guidance. Improving near-term inflation dynamics and moderating growth support our call for one final cut to 13.75% later this year. However, a likely reacceleration in inflation during 4Q26, persistently de-anchored medium-term inflation expectations, ongoing fiscal risks and elevated structural interest rates are likely to limit the scope for further easing over coming quarters."

"As expected, the BCB delivered another unanimous 25bp rate cut at its August Copom meeting, lowering the Selic rate to 14.0% and extending the easing cycle to 100bp since March. The decision was fully priced by the market and accompanied by a notably shorter statement. The committee avoided explicit forward guidance, instead emphasizing that the total magnitude of the calibration cycle will depend on incoming data."

"We continue to expect one additional 25bp cut later this year, taking the Selic rate to 13.75%, followed by a pause as inflation likely firms again in 4Q26 and political uncertainty increases ahead of the October election. While the BCB would prefer to normalize rates further, the scope for easing remains constrained by Brazil's fiscal trajectory and a persistently elevated neutral interest rate."

"We maintain our end-2027 Selic forecast at 11.50% (vs consensus 12.0%), while continuing to see risks to that view skewed toward a higher policy-rate path."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)