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BRAZIL: SocGen: See Rates Being Eased Further in The Medium Term

BRAZIL
  • The BCB is worried about “de-anchored” inflation expectations amid a still-resilient economy, challenging global backdrop, and mounting fiscal concerns. The statement said any potential change “will be determined by the firm commitment of reaching the inflation target”, setting a hawkish tone for rate decisions in the near term.  The unanimity of the members decision seems to prove the point the BCB President made last month about the technical nature of the split vote at the May COPOM. This should also sooth the market’s concerns to an extent.
  • As such, SocGen see clear upside risks of the central bank staying on hold in the coming meeting vs their year-end Selic rate projection of 10.0%. However, SG see rates being eased further in the medium term (where they differ more significantly from consensus).
  • In particular, SocGen note that the real policy rate remains tight in Brazil, the government will have an opportunity to appoint a new central bank governor later this year, and there will be more visibility on the Fed’s easing cycle, which should sooth the BCB’s (and the market’s) global concerns. 
  • SocGen maintain their end-2025 Selic rate forecast at 9.0%. The easing cycle will likely resume in a few months.
  • They continue to see the BRL as cheap and moving within the BRL5.20-5.50 range in the coming weeks. SG also like receivers such as Jan26 and longer horizons as they do not believe the central bank will hike rates and global financial conditions will likely improve moving forward. Moreover, UST yields might soften ahead according to SG Rates strategists.
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