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Bank of America (BofA) revised its economic forecasts for Brazil, signaling a more cautious outlook due to downward growth revisions in the United States. BofA’s analysts have adjusted Brazil’s growth and inflation projections, citing short-term uncertainties that have diminished following the government’s submission of an income tax reform bill to Congress, which includes compensatory measures.
The bank noted a deceleration in economic activity, revising its inflation forecast upward for the coming years. Inflation is now expected to reach 5.4% in 2025, up from the previous estimate of 5.1%, and 4.5% in 2026, up from 4.2%. This adjustment reflects the impact of currency depreciation and strong growth, although the Brazilian real has stabilized around BRL 5.70 and inflation expectations for 2025 have been revised downwards.
In terms of economic growth, BofA maintains its 2025 forecast at 2.0% but has reduced the expected growth rate for 2026 from 2.2% to 1.6%. The revision is attributed to the lagged effects of monetary policy, with activity expected to slow down in 2026 due to the current cycle of interest rate hikes that began in September 2024. Fiscal policy constraints and the fiscal framework further limit the government’s ability to provide a significant fiscal stimulus towards the end of the second half of 2025 or the first half of 2026.
BofA also updated its policy rate forecasts for Brazil, anticipating only one additional 50 basis point hike, which would bring the Selic rate to 14.75%, down from the previously forecasted 15.25%. The bank expects the cycle of rate cuts to commence in December 2025, earlier than the previously anticipated start in May 2026.
The pace of rate cuts is projected to remain consistent until a pause is predicted ahead of the Presidential elections in July 2026, with cuts expected to resume later in the year. Depending on inflation behavior and economic activity, the first cut could occur as early as November 2025. The Selic rate is projected to end at 14.25% this year, down from the previous estimate of 15.25%, and reach 11.25% next year, compared to the earlier forecast of 12.50%.
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