By Brazil Stock Guide – Brazil’s economic backdrop already allows the start of an interest-rate cutting cycle, even as the central bank is expected to keep borrowing costs unchanged at its first policy meeting of the year, according to Pine Bank.
In a report released on Monday (26), Pine said the Central Bank of Brazil’s monetary policy committee, known as Copom, is likely to hold the benchmark Selic rate at 15% at its meeting on Wednesday (28), in line with market pricing and analyst consensus. The bank nonetheless argued that current macroeconomic conditions would support an earlier shift toward monetary easing.
“A slowdown in economic activity, current inflation and inflation expectations suggests that the preconditions for monetary easing are already in place,” Pine said in the report.
Cristiano Oliveira, Pine’s head of macroeconomic research, said the decision to keep rates unchanged is widely anticipated. “We believe the committee will keep the Selic rate at 15% on Wednesday, in a unanimous decision, in line with both local yield-curve pricing and market consensus,” Oliveira said.
He added that the underlying data already justify a policy pivot. “In our view, the economic scenario would already allow the start of an interest-rate cutting cycle at this meeting,” Oliveira said, citing softer growth momentum and easing inflation dynamics.
According to Pine, simulations based on the central bank’s semi-structural model point to inflation slightly below 3.2% over the relevant policy horizon. The analysis also indicates a rise in the ex-ante real interest rate, meaning that real borrowing costs have increased in recent quarters despite the Selic remaining unchanged.
Pine said recent communication from Copom officials, combined with heightened global geopolitical uncertainty, reinforces expectations for a hold decision in January. Looking ahead, the bank forecasts a gradual and moderate easing cycle beginning in March, with the Selic rate falling to 11.5% by the end of 2026.
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