Brazil's central bank expected to cut Selic rate by 25 basis points, BofA comments

Investing.com -- Brazil's central bank is expected to reduce the Selic rate by 25 basis points to 14.50% at its upcoming Copom meeting, according to Bank of America analysts, despite a less favorable economic backdrop since the March meeting.

The central bank initiated its easing cycle in March, framing it as a "calibration" cycle. Since then, geopolitical tensions in the Middle East have clouded the outlook and reinforced uncertainty around energy prices and global supply chains.

On the domestic front, headline IPCA inflation deteriorated from 3.8% in February to 4.5% in mid-April, while core inflation rose to 4.9% from 4.3%. Core services inflation reached 5.3% on a momentum basis. Median inflation expectations for 12-month-ahead IPCA reached 4.17%, while implied inflation increased to around 5.8% on higher oil prices.

Activity data showed signs of losing momentum in February. Retail sales came in at 0.6% month-over-month seasonally adjusted, below the 0.9% forecast, while services grew 0.1%, missing the 0.5% expectation. Industrial production matched consensus at 0.9% but decelerated from January's 2.1%.

The Brazilian real has appreciated roughly 8.5% year-to-date, remaining one of the market's preferred assets. This currency strength gives the central bank room to continue easing and helps contain second-round effects from the oil shock.

Bank of America expects the Copom to shift the relevant monetary policy horizon to the fourth quarter of 2027 while maintaining a cautious tone. The analysts forecast rates will reach 13.25% by the end of 2026.

Financial conditions remained tight but improved slightly since the last meeting, notably due to risk perception and continued currency appreciation.

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