Higher for longer?
The Monetary Policy Committee (Copom) communication signals that the interest rate will be kept at a high level as long as necessary to bring inflation to the target midpoint and re-anchor expectations. However, we believe it is unlikely that the Central Bank will maintain real interest rates close to 10% for a long period beyond early 2026.
Recent international experience suggests that the end of monetary tightening cycles tends to be relatively quick: among emerging economies, the median time that interest rates remain unchanged after the last hike is just six months. In this context, the most recent episodes in Brazil, characterized by prolonged periods of high interest rates, are more of an exception than the rule.
Finally, we maintain the view that the Central Bank will continue to operate with an implicit inflation target above 3%, which leads us to expect that the monetary easing cycle will begin even before clear signs of inflation converging to the midpoint of the target and re-anchoring of expectations emerge.
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