By Brazil Stock Guide – Brazilian inflation expectations eased for the 13th straight week, fueling speculation that the central bank may accelerate its pace of interest-rate cuts. The data, released Monday in the Banco Central’s (BC) Focus survey and reported by Valor Econômico, showed price forecasts slipping further for 2025 through 2027, driving down futures rates across the curve.
The median forecast for the IPCA consumer price index in 2025 fell to 4.86% from 4.95% a week earlier. Estimates for 2026 dropped to 4.33% from 4.40%, while the 2027 outlook eased to 3.97% from 4%. The DI futures maturing in January 2029 retreated to 13.19% from 13.27%, as traders priced in deeper monetary easing.
Market Optimism Builds
“The Focus survey this week reinforces the perception that a more benign inflation outlook has materialized for the second half,” said Michael Kusunoki, head of fixed income and multi-asset at BNP Paribas Asset Management (BNP.PA) in Brazil. He stressed the significance of the 2026 revision, calling it “very relevant for the central bank’s model.”
Kusunoki argued there is still room for next year’s inflation forecast to fall further, as the recent downward move reflects only inertia rather than the full impact of the stronger real and falling implied inflation.
Room for More Aggressive Cuts
Fabricio Taschetto, CIO of Ace Capital, sees scope for deeper market repricing, especially at the short end of the curve.
“At this moment, we have 2.6 percentage points of cuts priced in through mid-2027,” he said. “With a stable currency, lower average inflation and anchored expectations, we could see at least three points of cuts on the curve.”
Taschetto added that an early start to easing could push yields even lower but warned about fiscal risks. “The danger is if there’s an issue with the budget or with the approval of the income tax exemption, which is more likely,” he said.
Short-Term Strategies
Both Kusunoki and Taschetto favor shorter-dated positions. Kusunoki said speculation could grow around a front-loaded cycle, possibly starting with a 50-basis-point cut, though he argued November would be “too soon.”
Taschetto dismissed early positioning based on the 2026 presidential race, even after reports that São Paulo Governor Tarcísio de Freitas may run. “It’s making prices move, but I think it’s nonsense. You can’t set positions now based on an election a year away,” he said.
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